The following data is based on the Trade Date of November 27 and the Settlement Date of November 30:

Sun Microsystems (NASDAQ:JAVA) had an adjusted 11.101 Million shares listed in its short interest after accounting for its reverse stock split.  What is interesting is that from mid-November that is a drop of some 30.5% in the short interest.  Maybe there is some love after all.

CMGI, Inc. (NASDAQ:CMGI) had an adjusted amount of 3.585 Million shares listed in its short interest after accounting for its recent reverse stock split.  This represents only a gain of 2.29% in the short interest from mid-November on an adjusted basis.

Sun Microsystems used to trade under the "SUNW" stock ticker, and even had the "JAVAD" ticker briefly, and CMGI traded briefly under the "CMGID" stock ticker while that was a pending reverse split.

Jon C. Ogg
December 12, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Microsoft (NASDAQ:MSFT) has a virtualization product of its own called Veridian, coming out later in 2008. But Ed Walsh notes that the product is at least a year behind VMWare and is aimed at lower level functions in server operations—server consolidation and provisioning which cuts operations costs. These are functions useful to smaller business but are less likely to fit the bill for large enterprises.

So, who plays where the real money is, and where the revenue per customer is highest?  Walsh contends that only Virtual Iron and VMWare have products that can handle complete disaster recovery, server capacity management, and the movement of tasks from application to application in a server cluster. He readily admits that VMWare is the Cadillac of the business. But, he claims that his software is easier to install and manage. 24/7 Wall St. asked if Citrix Systems’ (NASDAQ:CTXS) XenSource acquisition is coming on strong in the space and Walsh noted, “We never come up against XenSource. Just VMware.”  This was something similarly questioned by 24/7 Wall St.

When 24/7 Wall St. asked Walsh about what we have referred to over and over as “The VMware Conundrum” regarding valuation, we were surprised about the potential metrics Walsh was willing to discuss.  Walsh referred to the virtualization market on its own and gave some lofty multi-billion figures from IDC and even loftier figures from Bear Stearns What he added was all of the overlaps and secondary and tertiary operations that virtualization leads into that have been under the control of traditional I.T, software, security, and hardware firms.  The potential increase in the value of VMWare, if it can take over OS and security functions, could be substantial.

If Virtual Iron does hold such a critical place in the virtualization industry, the question is still open about how it can compete with VMWare which has a nearly mystical market cap of $33 billion and revenue of almost $360 million in the September quarter?  The smaller rival contends that it is the only other full answer available, and any field dominated by only one player can stifle development, efficiency, security, and interoperability.

Part of the answer is that Virtual Iron has a good product, and a significant difference in pricing. The other issue is that if VMWare ends up with a huge percent of the virtualization business, it will do some real damage to hardware and software vendors who do business in servers.  Walsh also noted, “Anyone can put a bunch of O/S’s on a server, but that won’t cut it, and now anyone can do that.” But with future virtual appliances, the O/S selection won’t be as critical.  He attests that the tipping point was when Microsoft recently cried “uncle” with its Veridian.

A recent survey by Goldman Sachs shows that IT executives expect virtualization to allow them to cut-back sharply on spending money for software from Microsoft, IBM (NYSE:IBM), and Hewlett-Packard (NYSE:HPQ). Even more important, tools that VMWare adds to its software package will allow it to take large pieces of business from Oracle (NASDAQ:ORCL) in the clustering part of the business, Symantec (NASDAQ:SYMC) in data protection, and configuration management revenue from HP. What is more than obvious is that EMC’s fairly recent acquisition of RSA Security is going to make RSA more prominent in the coming I.T. wars in 2008 to 2011.  Since there are three layers of server operation and more that have to be secured, it will make proper security a must.

Based on a model where VMWare takes over functions done by other companies, its market cap may be supported not only by potential virtualization revenue.  As noted above, this is part of what is driving VMware’s valuation as other pieces of the revenue pie held by large software vendors could come up for grabs. Sanford Bernstein puts virtualization software market share at 26% of revenue spent on the global installed server base in 2012.

Another by-product of virtualization is that it allows companies to operate with fewer servers, and more functions may run at the desktop level.  Why does the movie-inspired term “Skynet” come to mind where applications are teaming simultaneously on millions of computers rather in servers and mainframes? Over time, perhaps three to five years, this should start to cut into the server revenue at companies like Dell, HP, and IBM if these companies do not fully line up their partnerships upfront. It could also be devastating to operations like Sun Microsystems (NASDAQ:SUNW) because of the reliance on high-end servers.

The trend also could undermine chips sales for servers, effecting Intel (NASDAQ:INTC) and AMD (NYSE:AMD). If the “power player” in the server business is the virtualization provider and not the supplier of the operating system or hardware, it could quite easily turn the industry on its head..  The year 2008 is going to be the first of many for monumental changes from software to hardware to desktops to servers.

Virtual Iron is making what appears to be an intelligent gamble. Over time, VMWare may allow companies to save money, but it takes bread from the mouths of a number of other important IT suppliers. Those suppliers need an ally, and it isn’t too late for the industry to keep a system of checks and balances in place that insures mutual survival and mutual success. That ally is not likely to be Microsoft. It does not have a reputation for playing nicely with other tech firms. But, it could be Virtual Iron. Bargaining for a better seat at the table is more likely to work with the smaller private company than it is with VMWare. Virtual Iron may not just have good software. InfoWorld recently wrote “Virtual Iron is the closer match to VMware, boasting a rich set…”

End-user customers are apparently already pulling away from some of the traditional long-term spending plans to accommodate more spending around the aspects of virtualization.  A virtualization world ruled by one company could be bad for a number of others. Microsoft certainly did not do competitors any favors, nor does it now, in the server and PC OS worlds. Virtual Iron is not just a competitor in its field. It is a blocking play for IT to prevent the business from being taken over by VMWare, or, potentially Microsoft, although Redmond seems fairly far behind.

Can Virtual Iron financially support being a strong presence? It may have to go public to raise the war chest. But, VMWare showed how hot the business is, at least in the eyes of Wall St. And, Goldman is a shareholder. The company will be able to command high valuations, and the earnings and revenue multiples will depend on forward revenues and expectations rather than what was sold in 2007.

It is obvious with a ten year look back that Windows had too large of a jump on Linux, and Linux was too esoteric, unclear, and lacking unification for it to be an immediate threat or an immediate alternative.  Hardware, software, and IT Vendors need to take heed of the lesson of Windows.

Douglas A. McIntyre & Jon C. Ogg
November 12, 2007

These companies are all under constant review by 24/7 Wall St. for the Special Situation Investing Newsletter, and some in the "10 Stocks Under $10" letter.

Expectations for Sun earnings are very modest. But, with the stock well below its 52-week bottom, traders are clearly concerned that the company could miss.

Wall St. is looking for a 2.5% increase in revenue to $3.27 billion. Forecasts are that EPS will be $.03, up from a ($01) loss last year.

It’s not asking for much.

Douglas A. McIntyre

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Sun plans to use partnerships with local resellers to do the trick. The Wall Street Journal writes "the joint ventures will allow distributors to sell servers under the Sun name and enable Sun to expand quickly while keeping costs down." The Asia-Pacific region is now over 15% of Sun’s revenue.

Sun has had little success in improving its revenue recently. Growth in the last quarter was in the low single digits. Asia may not be able to help that as much as the company hopes.

Sun’s plans will probably run up against similar aspirations from Hewlett-Packard (HPQ), Dell (DELL), IBM (IBM) and local hardware companies in Asia. Sun’s plan to rely on resellers instead of a direct sales force may save money. But, it also takes direct management of marketing and pricing out of the firm’s hands. Which is probably not the best way to approach a foreign market, especially one where IP rights are not at the top of the list of business practices.

Sun’s China plan sounds nice. But "sounds" is as far as it will get.

Douglas A. McIntyre

Microsoft has become something of a corporate pariah.

That is unless one turns to the desktop. Eveyone still want to be Microsoft there. Google (GOOG) has started its Apps product, which has document, spreadsheet, and Powerpoint features. It hopes to take business from Microsoft Office which sold 71 million copies in the company’s last fiscal year.

Now, IBM (IBM) wants to be Microsoft. According to The Wall Street Journal "IBM plans to post on the Internet a package of its own software with applications that square off against components of Microsoft’s ubiquitous Office suite — a word processor to rival Word, a spreadsheet to go up against Excel and business-presentation software as an alternative to PowerPoint."

The new IBM product is based on Open Office, which is what Google and Sun (SUNW) are already using for their desktop suites. Big Blue wants to offer the free stuff to promote its own Notes product which provides email and instant messaging. Microsoft pretty much put Notes out of business over a decade ago.

Office has been challenged before,band with software that was close to free, if not just simply free. Linux desktop software has been available for some time. But, the interest in applications like Lindows began to fall off a few years ago. The product may have cost little, but it was hard to use and did not work well with Windows, which most PCs already have. There is usually talk about using a Linux desktop for low cost computers for under-developed countries. It never seems to materialize.

But, there is a reason that the Chinese pirate Windows in huge numbers. They could have Linux for free and not face prosecution (and, in China, execution). Windows has more features, more functions, and it only costs a little over $100.

Everyone wants to be Microsoft because they would like to sell hundreds of millions of something that companies and people will pay $100 for.

But, for better or worse, you don’t just get to be Microsoft overnight.

Douglas A. McIntyre

One week from today, and possible over the coming weekend, we should start seeing many more companies announce "Partnering with VMware" or "Supplying VMware" or "Strikes key partners for virtualization" and the like.  Next week from September 11 to September 13 is the VMWORLD 2007 Conference at the Moscone Center in San Francisco, and the roster is a Who’s Who in Techland.  There is also a Technology Day symposium ahead of it. 

Keynote speakers here will be from such tech heavyweights as John Chambers of Cisco Systems (CSCO), Patrick Gelsinger of Intel Corp. (INTC), and Hector Ruiz of Advanced Micro (AMD).  Other sponsors are major tech giants like Dell (DELL), H-P (HPQ), NEC, IBM (IBM), and of course the parent EMC (EMC).

Network Appliances (NTAP) is also a sponsor, and it already issued its press release to signal its involvement.

Some of the gold sponsors that are not quite as prominent are BEA Systems (BEAS), Brocade (BRCD), EDS (EDS), Emulex (ELX), Sun Microsystems (JAVA).  Further down the list of sponsors and exhibitors are BMC Software (BMC), Avocent (AVCT), CA (CA), Citrix Systems (CTXS) (which also recently made a virtualization buyout of XenSource), Novell (NOVL), Patni Computer Systems Ltd. (PTI), QLogic (QLGC), Microsoft (MSFT), Symantec (SYMC), and more.

What is interesting is that this virtualization conference includes almost all of VMware’s key competitors.  So they are not blocking out competitors, at least not this year.  For whatever it is worth, there are many overlaps out there in what would be deemed partners and competitors.  It has XenSource, Microsoft, Symantec, and others. 

It also sold out of sponsor and exhibitor opportunities some time ago.  Here is a full list of exhibitors.  It is probably safe to assume that many more virtualization partnerships will be coming ahead of, out of, and after this key industry event.

Stock Tickers: VMW, EMC, CSCO, INTC, AMD, DELL, HPQ, NTAP, IBM, BEAS, BRCD, EDS, ELX, JAVA, SUNW, BMC, AVCT, PTI, CA, CTXS, NOVL, QLGC, MSFT, SYMC

Jon C. Ogg
September 4, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he produces the 24/7 Wall St. Special Situation Investing Newsletter and he does not own securities in the companies he covers.

Investors were not willing to bet on a consolidation among discount brokers with the short interest in Schwab and E*Trade rising. It appears they did believe that Whole Foods would complete its merger with Wild Oats, lowering short interest in WFMI.

Short interest in cable companies, especially Comcast and Charter fell, perhaps indicating a bottom for those stocks.

And, shorts moved out of Yahoo! indicating that many investors do not see its shares falling further.

Largest Short Positions

Level 3 (LVLT)                                    129.3 million shares short

Comcast (CMCSA)                             113.2 million shares

Microsoft (MSFT)                                 97.2 million shares

Charter (CHTR)                                    94.5 million shares

Sirius (SIRI)                                         91.0 million shares

Intel (INTC)                                          84.0 million shares

Yahoo! (YHOO)                                   62.3 million shares

Cisco (CSCO)                                     57.5 million shares

Applied Materials (AMAT)                    50.3 million shares

Oracle (ORCL)                                    46.3 million shares

Conexant (CNXT)                                 45.5 million shares

Symantec (SYMC)                              42.9 million shares

Sun Microsystems (SUNW)                 41.0 million shares

Largest Increase In Short Position

Expedia (EXPE)                                  9.2 million share increase

E*Trade (ETFC)                                  7.7 million share increase

ON Semi (ONNN)                              6.8 million share increase

Ebay (EBAY)                                     5.5 million share increase

NetFlix (NFLX)                                   4.9 million share increase

Oracle (ORCL)                                   4.7 million share incrase

Schwab (SCHW)                                3.4 million share increase

Tivo (TIVO)                                         3.1 million share increase

Largest Decreases In Short Interest

Whole Foods Market (WFMI)               9.3 million shares decrease

Charter                                              9.2 million share decrease

Opsware (OPSW)                               8.9 million share decrease

Yahoo!                                               8.5 million share decrease

Dell (DELL)                                        8.4 million share decrease

Applied Materials                                8.2 million share decrease

Crocs (CROX)                                     8.0 million share decrease

Comcast                                            6.6 million share decrease

Data from NASD and WSJ

Douglas A. McIntyre

It will assume the stock ticker "JAVA" on NASDAQ on Monday, August 27, 2007.  The company notes how it is mostly tied to the Java brand and platform.  But here is the problem: it costs next to nothing to license Java anymore.  Its main revenues come from actual product sales that it claims run teh Java deployments, but those servers and storage systems run everything else too.

Maybe they will try a reverse stock split next, or maybe keep issuing the statement "We are well positioned for the years ahead."  After that, they could see if the other listed company with the ticker "FREE" would sell them the ticker.  This is a yawn of an event at best.

Jon C. Ogg
August 23, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

MSFT has had these press conferences before. There was one with AAPL a number of years ago when Redmond put money into the Mac company and said it would build Windows versions for the AAPL machine. The has been one with Sun Microsystems (SUNW) to bury an old hatchet between the two firms. And, one with Novell (NOVL) to announced a venture that would market Linux and Windows together as products that can both be used together efficiently on PCs and servers.

The MSFT press conferences usually do not amount to much. Reuters writes that "CSCO CEO John Chambers said he and MSFT CEO Steve Ballmer would visit customers together late yesterday, and that the they would try to clarify how the two companies compete and work together at the same time."

The word "try" is important in that report. "Try" is all either company will get. They are mortal enemies competing for billions of dollars being spent by the same customers. All they want to do is cut each other’s throats.

Douglas A. McIntyre

SUNW has made an arrangement with IBM (IBM) to market its Solaris operating system along with Windows, Linux, and IBM’s own OS. The Wall Street Journal quotes one expert as saying "developers have already successfully run Solaris on IBM mainframes, which he said is appealing to many customers"

SUNW needs some success. Its shares have fallen from a 52-week high of $6.78 to $4.72, near the 52-week low.

Recently, SUNW said its would begin to market its new chips to rival server companies, but Wall St. is skeptical the competitors would help the company by buying its products.

SUNW also announced that it will market its StarOffice product with Google (GOOG).

But, the core server business at Sun has to start growing again. If it does not, all of these other project won’t make a difference.

Douglas A. McIntyre