) is the global leader in the external disk storage market and
parent firm of the virtualization software vendor and market leader
). EMC's stake in VMware has decreased from 100% in 2005 to 80% in
We currently have a
$35.11 price estimate for EMC's stock
, implying 35% upside to market price. We estimate that VMware is
the second most valuable business division for EMC, after
information storage, making up nearly 40% of the firm's equity
value by our estimates. Since we estimate a $72.6 billion equity
value for EMC, our analysis puts VMware's equity value at $29
billion. Notably, our estimated equity value for VMware is close to
15% below the company's current market cap of nearly $34
Below we discuss the outlook for VMware's virtualization
software offerings and the firm's share in the global
virtualization software market.
VMware's Share in the Virtualization Software
VMware offers virtualization software that can be categorized
into two primary segments:
1. Desktop Virtualization Software
Desktop virtualization software allows users to run multiple
operating systems on a single desktop or notebook. For example, by
using VMware's desktop virtualization software, a user can run
Apple's Mac OS X from within a Microsoft Windows machine.
2. Server Virtualization Software
Server virtualization software allows companies to increase the
utilization of their servers by allocating the virtualized
resources of server hardware to multiple applications, in a manner
that is independent of the underlying operating system required to
execute the application.
VMware's share in the virtualization software market has
decreased from 50% in 2005 to 45% in 2010 as the firm has lost
share to competitors like Microsoft, Citrix and Oracle that have
aggressively targeted the virtualization software market.
We project that VMware's virtualization software market share
will continue to decline in the future, reaching 34% by the end of
our forecast period, driven by the following factors:
1. Increasing Competition
Firms like Microsoft, Citrix and Oracle have become active in
the virtualization market over the past few years and have taken
share from VMware, which once comfortably dominated the market.
As the market is forecasted to grow at a rapid pace going
forward, competition should increase, making it difficult for
VMware to maintain such a high market share.
2. Premium Pricing of VMware's Software
VMware's virtualization software package is the most expensive and
some of its competitors offer similar software at a fraction of the
price, while open source products are usually free. As
enterprises remain cost conscious after the economic recession of
2008-09, they might opt for lower priced products rather than
VMware's premium offerings.
However, VMware has its own selling points, the most important
being superior features. For e.g., VMware offers live
migration which others do not offer. Live migration provides the
ability to move operating systems and applications from one server
to another while they are running.
See our complete analysis of EMC stock here