VMware

"VMware" is a leading virtualization solution provider. Company was incorporated in 1998 and acquired by EMC in January 2004 and since then company works as wholly own subsidiary of EMC. As a part of EMC, Company shows manifold growth in it's revenues and today, it has attained a pioneer position as a leading virtualization solution developer. Virtualization solutions find their application in, right from home used computer to high end servers installed with world's biggest companies.

Company is an R&D base company and since 1999 has introduced 16 products. As on March 2007 Company works with 3000 employees, with more than one-third (1100) of its employees work in its R&D division.

Company provides solutions for creating virtual platform within computer infrastructure and further to automate, maintain and manage the  virtual infrastructure. It also provides all related services like installation, implementation and training. In last few years company introduce products that give virtualization new dimensions and more acceptability in market. To fulfill the more sophisticated needs of its end customers, company develop many follow up products that perform more sophisticated jobs for it's virtual infrastructure/machine like data recovery, data backup, access control, handling multiple virtual machine/platform at same time etc.

Addressable market for virtualization solution is large and expanding. As per estimates;

• Less than one million of the 24.6 x86 servers and less than five million of the 489.7 million business client PC's worldwide are running virtualization solutions.

• World wide shipment of x86 servers is expected to rise from 6.9 million units in 2006 to 8.7 million units in 2010.

• All new x86 servers shipments running virtualization software will increase from 5% in 2005 to 17% in 2010.

Taking above estimates into account, its clear that virtualization market is rising and rising very very rapidly and by 2010 the market addition per year will be one and half time more than present market size.

** with virtualization software installed.

The main demand for company's products is expected to come from corporate sector, that usually had to run multiple application on same infrastructure.

Company is expected to capitalize on this opportunity due to;

• Its pioneer position in industry.

• Its relationship with EMC, Cisco, Intel.

• Its vast and sophisticated range of products.

• Introduction of new production and improvement/enhancement of existing products by its very strong R&D team.

• Its market reach.

• Its existing relationship with clients which includes almost all big corporates.

Revenue

Company earns its revenue from;

• License revenue :- Consist of revenue earned from licensing of its various software products.

• Services revenue :- Includes revenues earned from software supports, design, implementation and training services provided to the customers.

Customers/industries served

Company's customers includes all big corporates of world, that itself covers almost all industries. Normally its products are not developed for any particular industry and its products normally work as hardware extension of a computer system.

Competition

Company's main competitor is Microsoft corporation which compete with company's various entry level products. Other competitors includes newly establish, emerging virtualization solution provider/developer companies.

Offer & Objects of issue

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Industry details and outlook

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Company Outlook

Company outlook is positive due to;

• Rising acceptance of virtualization solutions in corporate world. 

• Vast range of entry level and high end sophisticated products.

• Very strong R&D team which will lead to constant product enhancement and new product introduction.

• Strong business relationships

• Its pioneer position in industry.

• Its relationship with EMC, Cisco & Intel.

• Its market reach.

• Its existing relationship with clients which includes almost all big corporates.

Financials  ($ in million)

Company's financial year ends on December 31.

*Quarter ended March 31

Company's revenues show's a growth of nearly 82% and 101% in FY 2006 and Q1, 2007 respectively as compare to corresponding periods.

Company's operational income show's a growth of nearly 29% and 53% in FY 2006 and Q1, 2007 respectively as compare to corresponding periods.

Its operational income show's less growth as compare to its revenue growth due to rise in R&D expenditures and also to some extent due to, rise of services share in total revenue which yield less margins as compare to licensing.

Valuation/Offer value ($ In million)

At offer price of $28 per share company shares are available at PE of nearly 67 ( Annualizing Q1 2007 operating profit and deducting Tax @ 15%) 

*At $ 28 per share

** Outstanding shares 375,120,000

Fundamentally company offers "Low Risk High Growth" long-term investment opportunity. (Assuming that company perform with in expectations)

Negatives

• Competition is expected to rise.

• Introduction of any alternative and better technology.

• Company had paid non cash dividend (in form of low interest bearing notes) to EMC amounting $ 800 million which make balance sheet look weaker than earlier.

Positives

• Expected high growth rate of industry

• Rising acceptance of virtualization solutions in business world. 

• Vast range of entry level and high end sophisticated products.

• Very strong R&D team which will lead to constant product enhancement and new product introduction.

• Strong business relationships.

• Its pioneer position in industry.

• Its relationship with EMC, Cisco & Intel.

• Its market reach.

• Its existing relationship with clients which includes almost all big corporates.

• Strong cash flow.

This article reflects personal view of the author about the company and one must read offer prospectus and consult its financial adviser before making any investment decision

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