Virtualization Heats Up: VMware's Hot IPO, Citrix Buys XenSource

Virtualization Heats Up: VMware's Hot IPO, Citrix Buys XenSource

Many are calling VMware's initial public offering this week the most significant stock premiere since Google went public in 2004.

The virtualization software maker's IPO price of $29 finished 76 percent higher Tuesday at $51 per share in its first day of trading, the largest one-day gain for an IPO this year. The 33 million class shares sold account for nearly 10 percent of the company's common stock.

"We think this is just extra energy and visibility for the company and very helpful in attracting even more talented people," VMware CEO Diane Greene told the San Francisco Chronicle Tuesday.

The IPO's underwriters exercised an overallotment option to buy nearly 5 million more class A shares Tuesday. On Wednesday, the stock edged up as high as $59.87 in afternoon trading.

The offering pushes nine-year old company's value past $19 billion. Parent company EMC, which reportedly bought VMware for $625 million in 2004, owns nearly 90 percent of the company's remaining common stock, although Intel and Cisco hold minority shares of a combined 4 percent.

The debut shines a spotlight on virtualization technology, a hot topic right now among IT professionals looking for ways to boost computing power while cutting energy consumption in their data centers.

Virtualization saves companies money on energy costs and hardware by enabling computers and servers to run multiple operational systems, or "virtual" machines.

VMware, whose software runs on x86 systems, is the dominant virtualization software marker although it serves only 6 percent of the market, as reported in the San Francisco Chronicle reported Wednesday.

One of its smaller competitors, XenSource, also in Palo Alto, was gobbled up Wednesday by Fort Lauderdale, Fla.-based Citrix Systems Inc. for $500 million in cash and stock.

The acquisition moves Citrix into the adjacent server and desktop virtualization markets, which it expects to grow to nearly $5 billion over the next four years, the company said in a statement.

The company predicts the desktop virtualization market alone to grow into a $1 billion market in the next five years with an estimated 30 million office workers shifting to the technology.

"Today is a great day for the virtualization market because customers will now have a strong alternative that is open, proven and backed by one of the most successful end-to-end software infrastructure leaders in the entire industry," said XenSource CEO Peter Levine in a statement.

"This move is not about competing for the five percent of the market that is already being served. It’s about steering into the 90 percent white space that is wide open, both at the server and in new emerging opportunities at the desktop," he said.