(VMW) VMware Server Virtualization Leads in The Space

Recently, Palo Alto, California-based VMware Inc. (VMW) announced that it has been proclaimed the leader in the Server Virtualization space by the U.S.-based research firm, Gartner Inc.

Gartner has placed VMware in the “Leader” quadrant of its Magic Quadrant (MQ), for the company’s contribution toward x86 server virtualization infrastructure. The MQ is a research tool providing in-depth qualitative analysis of a market and its current affairs.

VMware launched its x86 virtualization technology in February 1999, to facilitate programmers to run multiple operating systems simultaneously on an x86 computer in a safe and efficient manner.

Recent research reveals that the virtualization space will grow in conjunction with rapid growth in cloud computing. Hence, we believe that VMware, a leader in virtualization technology, would be able to capitalize on this growth opportunity.

Last week, VMware announced a partnership with an Indian telecom firm, Bharti Airtel. Through the partnership, VMware will help Bharti Airtel to gain a position in the cloud based managed computer services market.

This apart, VMware is also strengthening ties with Novell Inc. (NOVL) by expanding its strategic partnership with the original equipment manufacturer. As per the agreement, VMware will install NOVL’s SUSE Linux Enterprise Server in VMware vSphere virtual machines, to reduce complexities and cost and increase portability and flexibility in virtualization. It is expected that customer bases of both the companies will benefit, thereby accelerating the rate of technology adoption.

VMware, majority owned by EMC Corp. (EMC), is the global leader in virtualization solutions from the desktop to the data center. The acquisition of SpringSource enabled VMware to position itself in the cloud computing space. With 170,000 customers of all sizes and more than 25,000 partners, VMware has come out with solutions that have successfully reduced capital outlay and operating expenses, ensuring business continuity and strengthening security.

According to IDC, enterprise server cloud computing will grow from an $8.4 billion market in 2010, representing over 600,000 units, to a $12.6 billion market in 2014 with over 1.3 million units. We expect VMware to benefit from this exponential growth with the help of contributions from SpringSource.

VMware’s first-quarter revenue increased 35.0% year over year to $634.0 million, supported by strong customer demand and stable contributions from geographical regions. VMware expects a sequential uptick in second quarter revenue based on significant contribution from its recently acquired Zimbra assets from Yahoo Inc. (YHOO).

Despite its leadership position in the virtualization space, we remain slightly concerned since VMware faces competition from big players such as Microsoft Corp. (MSFT), Hewlett-Packard Co. (HPQ) and Citrix Systems Inc. (CTXS).

We maintain our short term Hold recommendation for the stock.

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