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SAN FRANCISCO (AP) — Fresh off this year's hottest debut on Wall
Street, trendsetting software maker VMware Inc. is hosting nearly
11,000 people clamoring to learn more about a computing twist that is
turning into high-tech's next big jackpot.
VMware's three-day
conference, which began Tuesday in San Francisco, provides the
once-obscure company with an opportunity to build on the buzz created
by its lucrative initial public offering of stock less than a month ago.
"This is their moment in the sun," said Erik Josowitz, vice
president of product strategy of Surgient Inc., one of many software
makers hoping to ride VMWare's coattails. "They have every reason to be
having a very big party right now."
VMware's software steers a
process known as "virtualization," which allows computers to harness
more of their unused power and run more applications at once without a
hiccup. More than 20,000 companies already use VMware's software.
Investors
are flocking to VMware too. The Palo Alto-based company's initial
public offering raised $1.1 billion, the most a high-tech company has
pulled in since Internet search leader Google Inc. went public three
years ago.
VMware's stockholders have enjoyed the ride as shares
have nearly tripled from their initial price of $29. The stock hit a
new high of $82.75 Tuesday before finishing the regular trading session
at $76.65.
With a market value approaching $30 billion, VMware
already is worth more than all but three publicly traded software
makers — Microsoft Corp., Oracle Corp. and SAP AG.
In January
2004, VMware was valued at $602 million — the price EMC Corp. paid for
it then. Hopkinton, Mass.-based EMC still holds an 87 percent stake in
the company.
This week's conference, dubbed "VMworld," is another
reminder of the company's rapid ascent. VMware's first customer
conference in 2004 drew fewer than 1,500 people.
The central idea
of WMware's visualization software is to turn a single computer into
the equivalent of multiple machines, enabling companies to save money
on the hardware and electricity needed to keep their data centers
humming. Virtualization also is supposed to make it easier to recover
information after computers crash.
Those benefits are expected to
spur one of corporate America's biggest spending sprees on technology
since the dot-com boom ended in 2000. Research firm IDC estimates
spending on virtualization software and supporting services will swell
to more than $15 billion worldwide in 2011, up from $6.5 billion last
year. Billions more will likely be spent on compatible equipment.
"Virtualization
has reached a tipping point," Hector Ruiz, Advanced Micro Devices
Inc.'s chief executive officer, said during a speech at the conference
Tuesday.
Forrester Research analyst Frank Gillett agreed. "We are
about to see a big shift in information technology. It's like the light
bulbs are going off in everyone's heads all at once."
Computer
chip maker AMD is angling for a piece of the action, along with a long
list of technology bellwethers, including Intel Corp., Hewlett-Packard
Co., IBM Corp., Dell Inc. and Cisco Systems Inc.
None appears
better positioned than VMware, which was founded in 1998 by a group
that included entrepreneur Diane Greene and her husband, Stanford
University associate professor Mendel Rosenblum. Greene remains
VMware's chief executive and Rosenblum serves as chief technical
officer.
Analysts predict VMware will earn $235 million on
revenue of $1.27 billion this year, up from a profit of $86 million on
revenue of $704 million last year. The company's growth prompted both
Intel and Cisco to buy small stakes in VMware before the IPO.
"Diane
Greene had a great vision. She has proven that virtualization is bigger
than anyone ever thought it could be," said Vinod Khosla, a prominent
Silicon Valley venture capitalist and co-founder of Sun Microsystems
Inc. He is investing in a startup, Xsigo, that specializes in
virtualization hardware.
Greene, 52, told Tuesday's audience she sometimes finds it hard to believe how quickly virtualization is gathering steam.
"A
year ago, we were talking about virtualization becoming mainstream,"
she said. "Now, we are talking about a virtualization industry."
VMware's
future looks so bright that some analysts believe the company someday
could become as essential to the computing world as Microsoft is.
That's
because virtualization relies on a "hypervisor" that resides below
operating systems, such as Microsoft Windows and Linux, and makes key
decisions on how computers run. VMware kicked off this week's
conference by announcing deals to embed its latest hypervisor on the
servers commonly deployed in data centers.
Leery of VMware's
success, Microsoft plans to enter the virtualization market next year
with its own software, currently code-named "Viridian."
Other
rivals like Ft. Lauderdale, Fla.-based Citrix Systems Inc. could slow
VMware's growth. Citrix signaled its intention to become a bigger
player in the field last month with a $500 million deal to buy
virtualization specialist XenSource Inc.
But VMware has a huge
head start with 17 virtualization products already on the market and 22
patents that won't start expiring until 2018.
What's more,
VMware's high-flying stock gives it the financial clout to expand
through acquisitions. Toward that end, VMware disclosed Tuesday that it
has bought another virtualization software specialist,
Switzerland-based Dunes Technologies, for an undisclosed sum.
VMware
"is leaps and bounds ahead of everyone else, but I think we are a long
way from game over," Josowitz said. "This thing is just getting
started."
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