VMware Windfall for Cisco, Intel Hits $1B

VMWare shares gained another $3.62 per share today to $88.62. Among the happy shareholders are Intel (INTC) and Cisco (CSCO), who will reap one-day paper gains of $34.4 million and $22.6 million, respectively. Not bad for a day’s ticker watching. The two tech titans have made out well on their pre-IPO investments in VMWare, as noted recently by the Deal Journal blog. There are compelling strategic rationales for the investments in VMWare (VMW), the virtualization market leader. But the bottom line has turned out nicely as well.

Shares of VMWare have gained tripled since the EMC unit went public at $29 a share on Aug. 14. Intel paid $23 a share for its 9.5 million stake in VMWare, which translates into a gain of $623 million since the IPO. Cisco invested $150 million and is now ahead $410 million on its VMWare shares. That’s a combined $1.03 billion in paper profits between them.

VMware Acquires Dunes Technologies

VMware spiced up its VMWorld 2007 conference with some news of its own, saying it has acquired Dunes Technologies, a company that provides IT process orchestration software for virtual environments. Terms of the deal were not disclosed. Orchestration - the intelligent monitoring and management of complex virtualized environments - has gotten more attention recently after featuring prominently in Cisco’s announcement of its Data Center 3.0 strategy. In announcing the deal, VMware’s Raghu Raghuram cited the importance of orchestration as virtualization becomes more widely implemented.

“As customers move toward large-scale virtual infrastructure deployments, they need solutions that allow them to maintain control over a growing number of virtual machines,” said Raghuram, vice president of products and solutions at VMware. “Dunes has developed a powerful orchestration platform that will allow us to automate the entire virtual machine lifecycle from requisition to de-commissioning, while complementing existing VMware management and automation solutions such as VMware Lab Manager and the recently announced VMware Virtual Desktop Manager.”

Data Center IPOs of 2007

Was last week’s blockbuster IPO by VMWare a special case? Or are the turbulent financial markets still welcoming for technology IPOs? As the leading player in a hot technology niche, VMWare (VMW) was bound to attract strong investor interest. Even the timing of its debut couldn’t subdue that enthusiasm. As the markets fluctuated wildy on the latest news and rumors about the subprime mortgage market, VMWare nonetheless had a first-day gain of 75 percent, closing at $51 a share, up $22 from its $29 IPO pricing. That followed strong initial offerings for Limelight Networks (LLNW) and BladeLogic (BLOG).

But have these shares been able to sustain their gains through the recent market volatility? Here’s a quick look at how 2007’s data center IPOs have fared since going public:

Virtual Machines 101: VMware vs. Microsoft

Have you ever had trouble explaining virtualization, and why it matters? It’s not always a user-friendly topic for non-geeks. Steve Lohr’s profile of VMware in today’s New York Times provides an excellent overview of virtualization and its significance in the next few years, especially for data center management. It’s a great link to share with friends or colleagues who are still coming up to speed on virtualization, or who struggle to get past the jargon and gain clarity on key concepts. Here’s an excerpt:

A virtual machine essentially mimics a computer so that several copies of an operating system

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EMC To Sell Some VMware Shares in IPO

EMC Corporation (EMC) will sell approximately 10% of VMware through an IPO of newly issued VMware stock. EMC will hang onto the remaining 90% of VMware shares, and “has no intention of spinning out or otherwise divesting this ownership interest.”

VMware is the global leader in software for virtualization, the hot trend in managing complex data center infrastructures. The IPO will allow EMC to benefit from the boom in virtualization, but still retain tight control of VMware. The company also intends to use VMware stock options as as hook to attract technical talent.

“VMware is one of the fastest-growing businesses in the history of the software industry,” said Joe Tucci, EMC Chairman, President and Chief Executive Officer. “We expect the IPO to unlock more of VMware’s value for EMC shareholders while also strengthening its ability to retain and attract the software industry’s top talent.”

Virtualization Helping Save Tax Dollars

An agency within the U.S Department of Defense has virtualized nearly its entire server infrastructure, consolidating 17 data centers down to three, and reducing the number of servers from 560 to just 160. The Defense Contract Management Agency (DCMA), which manages contracts for the U.S. Department of Defense (DoD), used VMware virtualization software to improve its server utilization and data center management.

“DCMA has a duty to spend taxpayer money wisely while keeping the infrastructure running on a daily basis, and VMware Infrastructure allows us to do that,” said Mike Williams, the CIO of the DCMA. “Virtualization is a key component of our data center strategy and a cost-efficient way for us to accommodate agency growth without requiring additional data center space.”

Power: Key Selling point for VMware

VMware president Diane Greene says the company is planning to expand the rebate program that was recently rolled out by California utility PG&E, which offers financial incentives of up to $4 million per site for companies that use virtualization in data center consolidations. “Several other power companies are looking to do the same,” Greene told ZDNet’s Larry Dignan. An excerpt:

Greene indicated that power is becoming one of VMware’s larger selling points. She says that VMware’s lab is testing ways to move load and consolidate server workloads so they can shut down at night. These servers would then automatically start up again when needed. Under this scenario, you may use 100 servers during business hours and consolidate them down to 50 at night when you need less computing power.

Sounds like a twist on Hewlett-Packard’s dynamic cooling and lights-out data center management. The market for tools offering granular management of data center power and cooling is getting more interesting every day.

PG&E Offers Rebates for Virtualization

Pacific Gas and Electric has announced financial incentives to encourage the use of virtualization in data center consolidations, with qualifying customers able to earn a rebate of up to $4 million per project site. The initiative, which PG&E says is the first of its kind, has industry support from VMware, Intel, Hewlett-Packard, Dell, IBM and Rackable Systems.

The incentives are based on the amount of energy savings achieved through data center consolidation, and PG&E customers in northern and central California must apply for the rebate prior to pursuing a virtualization project (see PG&E’s web site for additional details). In addition to the rebate, customers can expect to save $300 to $600 in annual energy costs for each server that is removed, the utility said. Those savings can almost double when reduced data center cooling costs are also taken into account.

“Virtualization technology is helping our customers realize significant energy and cost savings, while addressing critical data center capacity issues,” said Helen Burt, senior vice president and chief customer officer for PG&E. “By providing financial support, we hope to increase industry adoption of this technology.”