A couple of years after co-managing the IONA IPO in 1997, one of the company founders, Annrai Oâ€™Toole, tipped us off that a little company called VMware had some â€œwicked coolâ€ technology we should pay attention to. We were in the running to be a co-manager for its original planned IPO, no doubt proposing some valuation in excess of $1B. After the market collapse the company was acquired by EMC in early 2004 for $635M. So where do things stand now? VMware is again on track for its IPO of sorts. Is this the start of something big, or is virtualization and VMware locked in a technical/engineering niche? By nature VMware started out as a tool for development and testing and is now moving into a much broader market thanks to the seduction of server consolidation. The real question is whether virtualization will shift the center of gravity from physical servers to the â€œcloudâ€ of computing resources. Most investors want to find the â€œnext BEAâ€ in the infrastructure software space. BEA was indeed a spectacular growth story but it too was based on technology that was many years in germination. When distributed transactions hit the mainstream, BEA was there. As transactions expanded into JAVA application servers, BEA shifted too. But the underlying technology had been around for a long time, in some cases 20 years, before being broadly adopted. And even BEA stalled out at $1B in revenues. So, is virtualization set to push a company like VMware into a sustained growth market above $1B in revenues? Thanks to the recent S1 filing we can all see that:
- VMware reached $704M in revenues for 2006.
- Its growth trajectory suggests revenue estimates just above $1B for this calendar year.
- Operating expenses grew rapidly last year, up 100% vs. the 80% revenue increase.
– Kris Tuttle