VMWare IPO

From the CEO's talk at the roadshow:

• Virtualization has established itself as a better way to run computer systems
• VMWare has been developing under the radar
• A platform layer at the bottom of the software stack
• Take advantage of it without changing any of the existing software
• Non-distruptive technology with disruptive effect
• 5000 partners with multiple tiers
• Vision: this software will become ubiquitous
• Brought mainframe class functionality and robustness to commodity systems
• 3000+ employees
• 40% engineers have advanced degrees
• 100% Fortune 100 and 84% Fortune 1000 companies
• Doubled every year
• $1B+ run rate
• Previously operating system and software has had one-to-one relationship with the computer system e.g. SQL server, Exchange server etc
• Servers were used around 35%, but with virutalization the utilization rate is around 85%
• Hardware independence property
• The virtual machine can be migrated to another physical system without any service disruption
• Results include high availability, full disaster recovery, load balancing
• For a data center the space costs around $1000 sq foot and $560 of power and cooling expenses per server per year
  
• A company example includes a utility which reduced the number of servers from 1000 to 80, 200 server racks to 10
• Means 70-80% reduction in datacenter space
  
• The capex reduction pays for the VMWare product in a short time
• IDC estimates that in 2005 6.4 million Intel/AMD based servers were shipped out of which 5% were virtualized and in 2010 8.7 million servers will be shipped and 17% of those are going to be virtualized meaning a CAGR of 36%, this doesn't include the currently installed servers that will be virtualized
  
• Market expansion estimates for 2010 by IDC: Disaster recovery ($8.2bil), Clustering and availability ($2.4bil), Virtual client computing ($3.3bil), Configuration and change management ($3.5bil), Security and vulnerability management ($4.0bil), Storage virtualization and management ($8.5bil)
• Currently only 8% of Intel/AMD market uses clustering
• Platform includes ESX server, which has 3 flavors: Starter Edition, Standard Edition, and Enterprise Edition
  
• Competition includes Microsoft whose product is expected to hit market in late 2008 and it will be compete with VMWare Starter Edition which has been in the market for 5 years
• Open source model where over 30 partners use the source code to add interoperability and functionality
  
• Partnering with processor developers like Intel (since 1998) to assist in making virtualization work better, and also working with companies like Cisco (since 2006) to make the products work seamlessly over the network
• Partnering with system vendors which provide a channel to market
• High transaction business model, which help monitor progress
  
• Current driver of IT infrastructure is ways to contain and reduce cost
• Finacials:
• 56% sales domestic, 44% international, over time expected to get 50-50
• 5000 channel partners, 1000 in past year
• High ROI business for customers
• Immediate return from capital perspective
• Over 70% CAGR in operating profit, excludes stock based compensation and amortization
  
• Intend to keep operating margin in mid-20% range
• Cash flow from operations increased 5x over past 3 years
• Primary use is reinvestment
• $1.2bil run rate