A leading provider of virtualization and cloud infrastructure
) recently entered into a definitive agreement to acquire
DynamicOps Inc., for an undisclosed amount. The acquisition is
expected to be completed by the end of the third quarter of
Burlington, Massachusetts-based DynamicOps develop solutions
that help in running virtual workloads (hypervisor) across diverse
cloud platforms. Hypervisor software (also known as virtual machine
manager) allows several operating systems to share a single
Solutions that can run multiple hypervisors have been in much
demand lately and this is mainly due to the fact that these
solutions help customers avoid cloud lock-in and price gouging.
Customers prefer to use these solutions to save cost as well as
maintain high availability.
The cloud management solutions from DynamicOps help customers to
effectively provision and manage hypervisors on both VMware and
non-VMware platforms as well as other heterogeneous environments.
Hence, customers can now use
) Hyper-V, Xen-based hypervisors and
) Elastic Compute Cloud (EC2) as easily as they manage their VMware
cloud environments using vCloud director.
The Infrastructure-as-a-Service (IaaS) market is nearing
saturation with higher number of players entering the market who
are looking for ways to differentiate their offerings. In this
regard, we believe that the DynamicOps acquisition fills up a
significant gap in VMware's product portfolio, by boosting its
offerings for heterogeneous cloud platforms.
We believe that the acquisition will put VMware as one of the
leading provider of cloud management solutions, thereby boosting
top-line growth and profitability going forward.
Acquisitions have been an integral part of VMware's growth story
over the years. VMware had been acquiring companies that can be
easily integrated within its existing product portfolio, thereby
expanding its reach into virtualization and cloud management. In
2011, the company acquired six companies for $304.2 million, net of
In May 2012, the company acquired Wanova Inc., a cloud-based
desktop virtualization solutions provider. We believe that VMware's
strong and innovative product pipeline along with its strategic
acquisitions will enable the company to drive its top-line growth
over the long term.
However, we believe that frequent acquisitions are a distraction
for management, which could impact organic growth. Moreover, the
company continues to face significant competition from open source
providers such as
) over the long term. Thus, we have a Neutral recommendation on
VMware over the long term.
We note that VMware shares have declined approximately 21.0%
over the last 3 months as compared to a 3.4% decline in S&P
500, reflecting a sluggish European market and a relatively weak IT
spending environment, which are expected to remain the primary
headwinds in the near term. Currently, VMware has a Zacks #4 Rank,
which implies a Sell rating over the short term.
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