EMC Corp. has officially spun off a 10% stake of server virtualization subsidiary VMware Inc. with an initial public offering (IPO) of shares this morning that were priced at $29, coming in higher than the previously announced range of $23 to $25. At that pricing, the IPO was expected to bring in $1.1 billion, $900 million after expenses.
Prior to today's offering on the New York Stock Exchange (NYSE), two of EMC's fellow blue chips announced they were purchasing stakes in the company. Intel Corp. bought 2.5% of VMware's common stock for $218.5 million, or $23 per share, enough to get an Intel executive appointed to the VMware board of directors; Cisco Systems Inc. later bought six million shares at approximately $25 a share for 1.6% of the offering worth about $150 million.
EMC's stock shot up more than 7% to close at $19.05 Monday in anticipation of the VMware IPO this morning and spiked at $19.56, though it fell again in early trading to $18.52, slightly below where it had opened Monday morning. EMC was clear in stating in a press release that it "will retain ownership of the remaining shares of VMware and has no intention of spinning out or otherwise divesting this ownership interest."
Despite the fact that EMC will retain ownership, Arun Taneja, founder and analyst with the Taneja Group, said the IPO will at least give the appearance of greater independence from EMC for VMware, which will hopefully lead to deeper partnerships with EMC's storage competitors. "The whole industry is transforming around VMware, but we're still babes in the woods when it comes to integrating VMware and storage."
For example, it was only late last year that the largest iSCSI SAN vendors, EqualLogic Corp. and LeftHand Networks Inc., were certified with VMware. ISCSI storage support for the VMware Consolidated Backup (VCB) option was only added as part of a dot release of the software this month.
"Migration is still tough" from DAS environments to networked storage to support new VMware environments, according to Mark Bowker, analyst with the Enterprise Strategy Group (ESG). Backup, high availability and disaster recovery are also high-profile areas when it comes to VMware's development, he said.
Meanwhile, rivals Virtual Iron Software Inc. and XenSource Inc. are also beginning to make some noise around product development in the hopes of competing better with Vmware. XenSource announced in late July that its virtualization software will embed storage management software from Symantec Corp.
VMware already offers many of the same features as the Symantec/XenSource package with its own file system, known as VMFS, Bowker argued, but said that the IPO's other stated goal of "an open platform strategy and partnerships with industry-leading technology companies both large and small" could further integration with applications, such as Microsoft's VSS (Volume Shadow Copy Service) "That integration between VCB and VSS would be huge," he said.
"Most storage companies already have some [development] efforts already under way with VMware," Taneja pointed out. "But there's also the sense they're dealing with a subsidiary of the enemy. A greater percentage of VMware owned by the public could help that perception."
Meanwhile, the analysts say, storage administrators can't ignore the impact VMware is going to have on their jobs. "If I was a storage guy, I'd be looking more and more at VMware, how it works and how to take advantage of it to further my career using something that requires a lot of storage expertise," Bowker said.
Even before this high-profile debut onto the public market, server virtualization, and VMware specifically, had already been making waves in storage. Storage vendors including LeftHand and FalconStor Software Inc. have begun delivering some parts of their software packages as virtual appliances. Symantec's NetBackup 6.5 allows for more granular restores from VMware backup images. The support for iSCSI SANs with VMware's Infrastructure 3 (VI3) has brought networked storage to a new audience and may help host-based management products, such as Symantec's SRM and Storage Foundation software, boost sales.
"We are in uncharted territory," said Taneja, predicting that virtual servers will come to challenge the position of today's operating systems in the IT infrastructure. "It's not hard to imagine the VMware layer becoming the main management system in the data center."