April 27, 2007 5:12 PM PDT

VMware IPO could raise $100 million

EMC subsidiary VMware could raise as much as $100 million in its initial public offering of stock, the virtualization specialist said in a regulatory filing.

Earlier this year, EMC announced the VMware IPO plan, saying the move would "unlock VMware value" for EMC shareholders and make it easier for VMware to attract and retain good employees. The company said it would sell only about 10 percent of VMware stock, retaining control.

EMC reiterated that rationale this week, but added in the 153-page filing some detail that wasn't previously available--for example, VMware's profitability. EMC earlier had shared only VMware's quarterly revenue when reporting financial results.

VMware had net income of $87 million on revenue of $704 million last year. In 2005, it had net income of $67 million on revenue of $387 million. In 2004, its $219 million in revenue produced $17 million in net income.

The filing said the company could raise up to $100 million.

VMware's virtualization software lets multiple operating systems run simultaneously on the same x86 computer, which in turn lets computers be used more efficiently and in a grander vision, be consolidated into pools of processing power constantly adjusting to changing workload demands. Virtualization has been used for this before, but typically for higher-end mainframes or Unix servers and not for mainstream x86 servers and even PCs.

In the filing, EMC details several risks, including competition. Although there are open-source projects competing with VMware--XenSource, Red Hat and Novell all ship the Xen virtualization software now--Microsoft is the only one EMC mentions by name.

EMC sees a big market for VMware: "We believe that the addressable market opportunity for our virtualization solutions is large and expanding. IDC estimates that less than 1 million of the 24.8 million x86 servers and less than 5 million of the 489.7 million business-client PCs deployed worldwide are running virtualization software," the filing said. "We believe industry trends towards more powerful yet underutilized multi-core servers and the increasing complexity of managing desktop environments will further accelerate the widespread adoption of virtualization for both server and desktop deployments."

Prospective stockholders shouldn't expect that they'll be able to steer VMware's direction, though.

"EMC will be our controlling stockholder," the filing said. "EMC will continue to control us following the completion of this offering, and will be able to exercise control over all matters requiring stockholder approval, including the election of our directors and approval of significant corporate transactions. In addition, EMC's controlling interest may discourage a change of control that the other holders of our Class A common stock may favor."

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