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Goldman Sach's note hits EMC, VMware

Goldman Sachs has removed EMC Corp. (NYSE:EMC) from its beloved Conviction Buy List this morning, although the firm is maintaining an official "Buy" rating. The catalyst for the initial call was VMware (NYSE:VMW) and the research note says this has played out and investors are one step further in understanding the underappreciated value of core EMC. The note does remain positive that EMC should continue to be bought as more balanced growth, multiple product cycles, and shareholder value initiatives after the partial spin-off of VMware are going to likely keep a bid under EMC shares. Goldman Sachs also said the 5% gain since adding it on July 31 was higher than the 1.2% gain in the S&P 500; and on an annual basis that EMC has risen over 65% versus just over 12% for the S&P 500.

Investors, indeed, need to do more to understand virtualization.



  1. Virtualization is on the cusp of wide adoption. It will be difficult for the stocks in this industry to reflect their actual future potential earnings until investors begin to understand the role of virtualization in the enterprise. It will reduce costs for hardware, as well as save time for deploying servers, as snapshots of images only need to be plugged in to the hypervisor.

    As an industry insider, I have a hold strategy with VMWare. I find it difficult though to weather the effect that day trading has on the stock, which will continue until, as you stated, investors begin to understand the implications of Virtualization.

    Add to this the 12% purchase by Intel (INTC), as well as a purchase by Cisco and the handwriting is on the wall. Eventually, you will see a Hypervisor on a Chip come from Intel, and then the need for an underlying OS on any system becomes moot.

    The question is, will this have a negative or positive effect on OS Manufacturers like Microsoft. I doubt it, as in my own experience, Vista runs faster with less memory on the Mac architecture then it does on the PC architecture. So it might be a boon for OS's.

  2. Jimmy,

    The writing is indeed on the wall and truly it will affect the Os and hardware monopoly it had. Imagine, you won't have Pcs being sold with Microsoft or Linux, it will be form of a "Virtualization SaaS" and I can go ahead a pick up an OS for the coming 2 months, which could be Mac and then also order Vista the next month.

    This Microsoft, redhat, Apple can very well turn into their own favor. They can have their own baked versions of "Mac appliances", "Vista appliances" or "Ubuntu Appliances". It is just the trick to ride this "Appliances" freight train than fighting it.

    I can imagine that a lot of folks would want to see VMware already start suffering, and a note from Goldman Sachs might be seen as a "you just can't rely on the future stocks based on its current value" but if investors seriously begin to see the long term effects of this phenomenon, then they will realize that it is NOT about VMware or Xensource or any other provider BUT about the commoditization of the hypervisor, whether on flash, a smaller footprint on disk or totally bunged in the motherboard, it will definitely affect the computing industry like never before.

    The focus now is on the management, the data centers will be painted and virtualized and will be at the mercy of vendors pushing faster and better products and administrators/IT managers/CxOs struggling to manage the data centers.

    So while I expect great things to happen in the IT world, I also know that it will spell disaster for those who aren't well prepared!


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