VMware (
VMW
), owned by EMC (
EMC
), leads the virtualization software market with a share of 45% and
competes with players like Microsoft (
MSFT
), Oracle (
ORCL
) and Citrix (
CTXS
). VMware reported strong earnings for Q1 2011, which raised its
stock price by almost 11% in the past week and also boosted EMC
stock by 6%. VMware is crucial for EMC as it constitutes around 40%
of its stock price, by our estimates.
As a pioneer in virtualization software, VMware's virtualization
software share has been declining slowly over the years due to
lower pricing of competitor offerings and the growth in adoption of
open source software. While we anticipate VMware's share will
continue declining to 34% by the end of our forecast period, Trefis
members forecast the share will increase for the next few years and
eventually decline to current share levels. The member estimates
imply an upside of 4% to our EMC stock price estimate.
We currently have a
Trefis price estimate of $35.11 for EMC's stock
, about 30% above the current market price of $26.91.
Increasing Competition & Competitive Pricing
Firms like Microsoft, Citrix and Oracle have become active in
the virtualization market with their own versions of virtualization
software and have taken share from VMware which once comfortably
dominated the market. VMware had a share of 50% in 2005, which has
declined to 45% in 2010. Even in terms of pricing, VMware's
virtualization software package is one of the more expensive in the
industry. Few of its competitors offer similar software at a
fraction of that price. VMware is also challenged by open source
products that are usually available for free.
VMware Reports Strong Q1 Results
VMware reported license revenues of $419 million for the first
quarter of 2011, an increase of 34% year on year (YoY). The company
saw growth across all geographies - a good sign. The U.S. and
international revenues grew 26% and 44%, respectively, compared to
first quarter of 2010. During the quarter, VMware introduced new
offerings like Cloud Foundry and vCenter Operations, which again
boosted the overall performance of the company. If VMware continues
to maintain this pace of growth in the following quarters, we can
expect it to notch a few market share points higher in coming
years.
Our
complete analysis for EMC's stock is here
.