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VMware continues to be expensive despite 55% stock plunge and competition

First lets do a Real-Time Market Analysis

While all those estimates, tempered and then with a correction of $1Bn, are only mentioning about a market of just 1% servers that are virtualized!

In Europe and in APAC there is not just growing interest in existing Citrix and Microsoft customers but also several "neutral" customers to go ahead and adopt Citrix and Microsoft virtualization.

Many customers are looking for heterogeneous answers and want a complete answer to their TCO and not an inflated story about "doing it all with VMware". The customers are keen on all solutions but are still maintaining the sentiment of: "Just do the right thing for us".

That leaves a lot of consulting and implementers with bigger responsibility. You cannot afford to sell a "one-vendor fit all" package to customers anymore.

Technological advances such as Cloud Computing

While price correction (read = reduction) may not be the only answer to VMware's woes, it certainly will help them validate their business for some time to come. Cloud Computing is coming in a big way and virtualization, be it desktop, application or whatever form, is merely one of the building blocks of the Cloud Infrastructure, both Internal and External Clouds ( I'll write a detailed article on keys differences between Internal Clouds and External Clouds soon).

With several new trends where a lot of focus is being put on performance, such as VMdirectpath, where you would want to tie up your VMs directly to physical NICs would mean a "negative-correction" in the TCA, both initial as well as perpetual, while purchasing more hardware thus diminishing your TCO and there may also lead to lesser flexibility.

Several other enhancements, should a firm want to go ahead and do it all right, would mean in VMDK or virtual hard disk compression where FastScale or other vendors might be considered (add more dollars to your TCA), and other enhancements, merely on the hypervisor level might be challenging as innovation continues both on hypervisor level as well as on the management capabilitites.

Competition

While VMware might still feel ahead of the market, other enhancements in I/O (on all core components such as disk, network, cpu or memory) will also work in favor of other vendors such as Microsoft, Citrix etc who will obviously price their products at a much lower price, going after the rest of the 99% of the un-capitalizeed market.

Management tools are aplenty and one such tool is that of the maturing SCVMM of Microsoft, which it will puash ahead to manage the "other" virtual environments before usurping not only the market share but also credibility of the simplicity of interfaces.

Complementers

There are enough vendors at the bottom of VMware's food chain, they are just finding it hard to sell, many of them are still holding their breath under water to just about sell their own software. I have spoken to many CEOs and they are just languishing and surviving on the investments and fundings, obviously their investors too would like to see some returns and you can't sell if the license of VMware is enough to bloat the project budget.

These factors are all going to be challenging not just for VMware but also for other virtualization vendor, it surely will affect VMware adversely should it not make that "correction", both strategic and from price perspective.

Now the article from Reuters:

TEMPERED EXPECTATIONS

When it made its stock market debut on August 14, 2007, VMware boasted annual sales of about $1 billion and its revenues were growing at an annual rate of about 100 percent.

Investors clamored to buy the stock in a frenzy reminiscent of the Internet bubble, driving it to $51 on its first day of trading -- 76 percent above its offering price of $29.

At the time, analysts had on average forecast an $818 million profit for VMware in 2010, excluding items, on revenue of $4 billion, according to Reuters Estimates.

Expectations have been tempered. Wall Street now has lowered its sights to project a 2010 profit of $645 million on revenue of $3 billion, largely because of growing concerns over new competition that VMware's management downplayed before the IPO.
Source

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Avastu Blog is migrating to IdeationCloud.com; 1st Jan 2009 live

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