Posts for Ticker ‘virtualization’

Sun Micro Wants Deeper Virtualization (JAVA, CTXS, VMW)

Sun Microsystems, Inc. (NASDAQ:JAVA) has announced that it has entered into a stock purchase agreement to acquire Stuttgart, Germany-based innotek.  Sun is calling innotek the provider of the leading edge, open source virtualization software called "VirtualBox."  VirtualBox has had over 4 million downloads since January 2007.

As part of Sun Micro’s xVM portfolio, VirtualBox will have the support of Sun’s global development community, field resources and partners to make VirtualBox even more compelling to developers and end users, driving greater adoption across a broad set of communities.  This will also enable desktops or laptops to run Windows, Mac, Linus, or Solaris O/S side by side.

This is after Sun announced it would acquire MySQL last month.  Financial terms were not disclosed, although this is listed as "not material" to earnings.

Citrix Systems (NASDAQ: CTXS) saw a brief rally after it acquired XenSource for virtualization and we all know how the hotter-than-hot VMware (NYSE: VMW) IPO brought virtualization front and center in the investment community.

Jon C. Ogg
February 12, 2008

Posted on: February 12, 2008 – 11:19 am in Mergers and Buy Outs, Software, , , , , , , , , , ,

VMware’s Revenue Punt Destroys Its Shares & EMC Shares (VMW, EMC)

VMware, Inc. (NYSE: VMW) has posted earnings of $0.26 non-GAAP EPS on $412 million in revenues.  First Call had estimates pegged at $0.24 EPS and $417.37 in revenues.  Even though this represents an 80% revenue gain, this is going to be dismal for most VMware investors. 

If the company offers guidance in the conference call, Next quarter’s estimates are $0.24 EPS and $436.41M in revenues; if the company offers 2008 targets, those estimates are $1.17 EPS and $2.08B in revenues.  This was only the second earnings report out of the company and its first full quarter as a public company.   Analysts had an average price target on VMware of $105.88, and we’d likely expect many analysts to have more cautious comments that this looks "near full value" based upon today’s numbers.  Its former parent, EMC Corp. (NYSE: EMC) is set to report its earnings tomorrow.

Diane Greene, president and chief executive officer of VMware: "We begin 2008 with more than 100,000 customers, 500 technology and consulting partners, nearly 10,000 go-to-market partners, and more than 5,000 employees. As others begin to enter the market, VMware and our partners are continuing to broaden and deepen our highly reliable end-to-end virtualization solutions."

VMware stock closed down 1.2% to $79.55 in normal trading and its shares had mostly traded in a $76 to $83 trading range over the last five trading sessions.  This is the worst event-risk trading seen on this with a drop of 25% to $62.37 in after-hours trading. In fact, this essentially wipes out most of the post-IPO gains.  VMware will need to show some huge guidance to make this initial reaction a bit less violent.

You can imagine the headlines for Tuesday: "VIRTUALIZATION CRAZE ENDSAS FAST AS IT STARTED"….. That might prove true for VMware, althoughthis trend will be a huge savings boon for every large and mediumenterprise out there.

EMC shares are down some 9% or more to $15.30 in after-hours trading after a mere 1% gain in regular trading today. 

Jon C. Ogg
January 28, 2008

Posted on: January 28, 2008 – 4:51 pm in Earnings, Software, , , ,

Quest Software Buys Into Virtualization (QSFT)

Quest Software, Inc. (NASDAQ:QSFT) has announced the acquisition of the assets of Provision Networks Inc.  Provision is a privately held enterprise-grade presentation and desktop virtualization solutions provider across both physical and virtual desktops, and applications and servers. The companies’ combined products will enable Quest to extend its leadership in infrastructure management from the desktop to the datacenter.  Effective immediately, Paul Ghostine, co-founder and CEO of Provision Networks, will report directly to Smith and lead this newest addition to Quest.

Provision Networks is a global provider of presentation and desktop virtualization solutions which embrace and extend the Microsoft Terminal Services platform and Virtualization Infrastructure platforms from VMware, Virtual Iron, XenSource, SWSoft, and Microsoft.

Quest Software Inc. (NASDAQ:QSFT) closed up 1.8% at $16.48, in between the $13.58 to $18.14 52-week trading range.  Shares are up 0.2% at $16.51 in after-hours trading.

See our 24/7 Wall St. exclusive, where we interviewed the CEO of Virtual Iron as one of the leaders in virtualization.

Jon C. Ogg
November 12, 2007

Posted on: November 12, 2007 – 4:43 pm in Mergers and Buy Outs, Software, ,

Citrix CEO Selling Shares Into VMware/Virtualization Strength (CTXS, VMW)

Citrix Systems, Inc. (NASDAQ:CTXS) announced after today’s close that Mark B. Templeton, its President & CEO, is adopting a prearranged trading plan for the exercise of 763,017 expiring stock options and the sale of the underlying shares of common stock. The options are due to expire in the beginning of 2009.

The plan is established with the guidelines specified by Rule 10b5-1 and under the company’s policies with respect to sales of shares held by directors and officers. Appropriate filings reporting the sales will be made with the Securities and Exchange Commission when the sales are completed under the trading plan.  10b5-1 sales plans are nothing less than a "planned and gradual share sale" and are usually tied to many of the same restricted employee sale blackout dates.

These shares will be sold by March 31, 2009. Under the terms of the plan, but Mr. Templeton will have no discretion or control over the timing or effectuation of the sales. The plan also contemplates the exercise and hold of 21,922 stock options and the sale of an equivalent number of Citrix shares Mr. Templeton already owns. Citrix noted that Mark Templeton currently owns 158,951 shares of Citrix common stock. Other than the transactions noted above, Mr. Templeton confirmed he has no plans to sell these other shares.

We haven’t calculated the cost basis of the options to determine an implied net cost basis for the stock.  But at today’s $42.06 closing price, if the cost basis was zero and if the shares were all executed at today’s price this share sale would represent a net sale before fees of $32,092,495.02 before the additional share sale contemplation.

Citrix shares have risen from under $35 to over $42 since it acquired XenSource, the virtualization play and competitor to the mighty hot VMware (NYSE:VWM).  Citrix shares are up roughly 50% over the last year and are back within sniffing distance of two-year highs.  The recent popularity of VMware for traders as "The Next Next Thing" has undoubtedly led to stronger Citrix interest.  It has now closed the XenSource deal and the VMware Q&A session from analysts this week was full of questions regarding running into XenSource competition (despite past partnership status).

$32 million isn’t likely what he’ll net out of this, but that is one big number.

Jon C. Ogg
October 26, 2007

Jon Ogg is the editor of the 24/7 Wall St. Special Situation Investing Newsletter; he does not own securities in the companies he covers.

Here is the formal explanation from the company of a 10b5-1 plan: Rule10b5-1 allows officers and directors to adopt written, prearrangedstock trading plans when they do not have material, non-publicinformation. Once the plan is set up, trades may be executed at timeswhen the director or officer is in possession of material nonpublicinformation, based on the application of a formula or bindinginstructions determined at the time the plan was entered.

Posted on: October 26, 2007 – 4:12 pm in Insider Activity, Software, , ,

Get Ready… VMware’s First Earnings (VMW, EMC, CTXS)

On Wednesday, October 24, we’ll get our first look at the real VMware (NYSE:VMW) earnings.  "Consensus" estimates are still varied from source to source, but we have First Call on last look as showing $0.17 EPS on $332.5 Million.  We have another source at $331 million, but the truth is that this doesn’t matter.  The highest estimate we have seen is $352.1 million and after the massive performance any logic would dictate that this has to blow away all of the high numbers and then some.  If not, then it’s just another overpriced hi-flyer. 

WARNING from 24/7 Wall St.: logic can still fall victim to the VMware conundrum we have explained.  We gave a scenario of what current $100+ stock prices actually look like on the valuation front.  That VMware stock conundrum is going to exist for some time until the float catches up.

If VMware offers guidance, the street is at $0.19 EPS & $382.8 million for next quarter.  Watch the guidance closely, because that is a part of what caused the hit to Citrix Systems (NASDAQ:CTXS) shortly before completing the XenSource purchase to enter its virtualization phase.

Traders are still using stock options as a stealth trade to playVMware.  It traded 4.4 million shares of stock today, but the NOV putshad over 5,000 contracts of the six closest active strike prices andthe NOV calls traded over 10,000 contracts of the seven closest strikes.

On Thursday, October 25, we’ll see how this impacts EMC Corp. (NYSE:EMC) and we’ll follow up with a more combined and interfaced preview for EMC separately tomorrow.  Below are the other key issues you’ll want to know regarding VMware:

Jon C. Ogg
October 23, 2007

Jon Ogg is the editor of the 24/7 Wall St. Special Situation Investing Newsletter; he does not own securities in the companies he covers.  We just released our first part of two of our "Small Cap Internet Watch List" for subscribers to see which stocks we think could be acquired (and by which suitors) under the right circumstances in the space. This year alone we have discussed how aQuantive, 24/7 Real Media, and Web.com were acquired off this list;and you can see samples of this.

Posted on: October 23, 2007 – 4:54 pm in Earnings, Software, Technology Companies, , , , ,

Citrix Systems, Officially a Virtualization Play (CTXS, VMW)

Citrix Systems Inc. (NASDAQ:CTXS) has officially become a "virtualization stock" as it announced this morning that it has closed upon the $500 million purchase of XenSource, which was announced in August.  The company now claims that Citrix is now the only company to offer organizations an end-to-end virtualization infrastructure that includes application, desktop and server virtualization solutions.   The company has many other announcements and demonstrations this morning at its App Delivery Expo in Las Vegas:

  • Citrix EasyCall allows organizations to communication-enable any application delivered via Citrix Presentation Server or Citrix NetScaler;
  • Organizations using Citrix Presentation Server can now record and play-back any user application session with Citrix SmartAuditor;
  • Citrix and HP team to offer a unique new PowerSmart capability designed to help customers reduce datacenter power consumption as a core property of their application delivery infrastructure.

Citrix is also seeing shares trade up on an analyst upgrade.  Deutsche Bank raised its Hold rating to a "Buy" rating based on its conviction that XenSource is a legitimate vendor in the virtualization market behind VMWare (VMW).  Deutsche Bank also noted that XenSource could contribute more than expected to the company’s fourth quarter.

As a reminder, Citrix saw shares down briefly about as much as 10% after its earnings report last week.  Shares are up 1.5% at $40.24 in pre-market trading.

Jon C. Ogg
October 22, 2007

Posted on: October 22, 2007 – 7:57 am in Software, , , , ,

What Citrix Systems Earnings Mean To VMware (CTXS, VMW, MSFT, EMC)

Citrix Systems Inc. (NASDAQ:CTXS) is set to report earnings after the close today.  Because of past options reviews and its old listing issues this may only be a partial or preliminary report that only shows revenues.  First Call has estimates at $0.38 EPS and revenues at $339.7 million.  Next quarter estimates are $0.45 EPS and $373 million; and Fiscal-2008 estimates (very wide range) appear to be $1.75 EPS and $1.57 Billion revenues.

In prior periods this might not have garnered enough enthusiasm for its own preview, but after it announced XenSource for $500 million it became a more focused interest as a virtualization stock.  That deal is expected to close this quarter. As per its comments: This acquisition moves Citrix into adjacent server and desktop virtualization markets, expected by Citrix to grow to nearly $5 billion over the next four years. None of the results from XenSource will be included in Q3 earnings, but it’s a safe bet that the focus from Wall Street will be covering the virtualization push.

Citrix shares closed at $32.27 the day the XenSource deal was announced.  Shares now sit up above $41.00 and over the last few days this was on new year highs at $42.75.  Analysts have an average price target around $43.00.

Citrix also extended its virtualization alliance with Microsoft (NASDAQ:MSFT) in September by standardizing on the Microsoft® Virtual Hard Disk (VHD) format as a common runtime environment for both virtualized operating systems and applications.

We won’t start drawing the EMC (NYSE:EMC) comparisons for the value that VMware has added in relation to XenSource.  The companies are very different and the company can’t (or at least shouldn’t) make too many robust comments on a pending or developing issue.  But despite the major size differences between these companies, it is quite likely that VMware traders and investors will be looking to see how much focus Citrix gives to virtualization.

Jon C. Ogg
October 17, 2007

Jon Ogg is the publisher of the 24/7 Wall St. Special Situation Investing Newsletter and he does not own securities in the companies he covers.

Posted on: October 17, 2007 – 12:37 pm in Earnings, Software, , , , ,

Microsoft Earnings: Goldman Sachs Must Know Something (MSFT)

Goldman Sachs has one of the more premiere research shops for the bulge bracket firms on Wall Street and investors look to its "Conviction Buy List" with regularity.  It might not seem odd that Goldman Sachs added Microsoft (NASDAQ:MSFT) to its Americas Conviction Buy List on a regular day.  But when it is about a week before earnings and the day Intel and others are reporting it makes it very difficult not to wonder if the analyst didn’t get some insight that might not be available elsewhere.

Goldman Sachs’ note from analyst Sarah Friar says that it expects upside to Microsoft’s first quarter results based upon the numbers out of Halo 3, the aQuantive buyout, currency benefits, and new product cycles like Office 2007 and Windows Server 2008 driving what Goldman estimates at 12%+ growth into fiscal 2009.  Goldman Sachs also noted that the current valuation remains at a significant discount to the software group and in-line with S&P peers, while sentiment is "almost overwhelmingly negative."  The summary concludes that this will take the stock higher on a better quarter.

Another wild card here is that these notes are no longer from Rick Sherlund, the former Goldman Sachs analyst that was considered the honcho of all analysts that covered Microsoft.  Microsoft was removed from the Conviction Buy List back on April 10, 2007 and shares closed at $28.21 that day.  Shares are up 1.2% today at $30.42.  Estimates were already raised last week and Goldman Sachs has a $37 target for the stock.  It isn’t our take that the analyst got anything secret, but maybe some solid research came in ahead of these other tech earnings. There is either some performance chasing going on, or there is some strong insight here from investigative research.

Jon C. Ogg
October 16, 2007

Posted on: October 16, 2007 – 1:05 pm in Analyst Calls, Software, , , , , , , ,

VMware’s Magic Is Becoming Wizardry (VMW, EMC)

VMware Inc. (NYSE:VMW) shares managed to cross the century mark of $100.00 on Tuesday.  This has been an unbelievable stock with a premium IPO pricing at $29.00 (under our projected IPO price target) and the stock never seeing a sub-$50.00 print.  Shares even managed to trade over 5.8 million shares on Tuesday’s 6.8% gain to its highest post-IPO close of $101.61, making this the busiest trading day in the stock since September 12.

There is no doubt that this one is a beneficiary of ongoing window dressing and the tech-markup with the other key tech stocks outlined as we enter the end of the year for many fund managers in October.  But even with what we labeled as the "VMWARE CONUNDRUM" because of a low float exaggerating it’s price moves, money managers’ and traders’ demand for stock in the virtualization king seems tireless.

There is no doubt that the company is the leader in virtualization and there is no doubt that the company wants to exceed its targets and will do whatever it can to beat targets.  It has already made itself an acquirer and will likely do so at each new virtualization conference it attends.  But at a closing price of $101.61 what does this stock look like in valuation?

Read More »

Posted on: October 10, 2007 – 3:45 am in Software, , , , , , ,

Red Hat Looking More Green & Blue (RHT, VMW)

Red Hat Inc. (NYSE:RHT) is starting to look more and more like a traditional software company each quarter.  The valuations are no longer like virtualization values, and virtualization is probably going to help Linux system sales directly for Red Hat.  Here are the key results:

  • Total revenue for the quarter was $127.3 million, an increase of 28% from the year ago quarter and 7% from the prior quarter. Subscription revenue was $109.2 million, up 29% year-over-year and 6% sequentially. Total revenue expectations from First Call were $117 million.
  • Net income for the quarter was $18.2 million, or $0.09 per diluted share, compared with $16.2 million, or $0.08 per diluted share, for the prior quarter and $11.0 million, or $0.05 per diluted share, in the year ago quarter.
  • Non-GAAP adjusted net income for the quarter was $36.9 million, or $0.17 per diluted share, after adjusting for stock compensation and tax expense as detailed in the tables below. This compares to non-GAAP adjusted net income of $33.7 million, or $0.16 per diluted share, in the prior quarter and $24.5 million, or $0.12 per diluted share, in the year ago period. Non-GAAP expectations from First Call were $0.17 EPS.
  • Guidance was issued for the quarter was $131 to $133 million in revenues, and non-GAAP EPS of $0.18; estimates are $0.18 EPS and $132.5 million revenues.

Red Hat released the beta version of the Red Hat Developer Studio, an integrated Eclipse-based set of open source development tools and runtime environment.  VMware’s (NYSE:VMW) rapid launch and faster investor absorption tied with cheaper RAM and multi-core processors are both lining up to be just what the doctor ordered for Red Hat and other Linux players in general (read about that on the Red Hat site on virtualization).

In addition, Red Hat today announced that its Board of Directors had authorized the continuation of the Company’s stock and debenture repurchase program. Under the program, the Company is authorized to repurchase in aggregate up to $250 million of the Company’s common stock and in aggregate up to $75 million of the Company’s 0.5% Convertible Senior Debentures due 2024.

If Red Hat just meets fiscal FEB-2008 EPS targets at $0.70 then even after the 4% jump in after-hours prices its forward P/E ratio on a non-GAAP basis is becoming more than easy to mentally absorb at 27.5.  The company does have more competition, but this new opening up of the desktops from virtualization in 2008 to 2009 and beyond may really open up the market for this company. 

The wildcard for this one tomorrow is going to be the Wall Street research calls with upgrades or downgrades.  These numbers on the surface have no WOW-factor to them, but the flip side is that these numbers are also starting to look more normalized.

Jon C. Ogg
September 25, 2007

Jon Ogg produces the 24/7 Wall St., LLC Special Situation Investing Newsletter; he does not own securities in the companies he covers.

Posted on: September 25, 2007 – 5:41 pm in Earnings, Software, , , , , ,

What To Expect From VMware & EMC Analyst Coverage (EMC, VMW)

This weekend may mark the official end of Summer, but VMware (NYSE:VMW) and EMC Corp. (NYSE:EMC) shareholders are going to have to watch the calendar.  The brokerage firm and underwriting quiet period for this super-hot IPO should be ending.  This may actually be one of the most impacting events on shares of VMware and on EMC since the IPO, even if it is merely the order of post-IPO transition on the calendar.  That being said, the analysts at the underwriting firms will all be able to issue formal research reports and those may start coming very soon.

To throw another wrench in the machine, Friday is September stock options expiration date.  We recently noted how traders have been using stock options as a stealthy way of having exposure to VMware.  We have referred to a "VMware conundrum" and this may be contributing to the option trading as "less risky" trade if you can imagine that.

Read More »

Posted on: September 21, 2007 – 4:05 am in Analyst Calls, Software, , , , , ,

Oracle: Almost Multi-Year Highs Into Earnings (ORCL)

Shortly after today’s close we will see earnings from the king of enterprise-wide software leader Oracle Corp. (NASDAQ:ORCL).  This will be one of the key results to watch, and with shares over $20.00 its market cap is over the $100 Billion mark.

Ellison & Co. are expected to have the following results, according to First Call:
AUG-07 Qtr. $0.21 EPS & $4.34 Billion revenues
NOV-07 Qtr. $0.26 EPS & $4.88 Billion revenues
MAY-08 FY   $1.18 EPS & $20.9 Billion revenues.
MAY-09 FY   $1.34 EPS & $23.05 Billion revenues 

Options expire tomorrow and now that the strike prices are in $2.50 increments these are difficult to peg for any real expectations.  September Put & Call options expire for stocks tomorrow as well.  There are over 100,000 contracts listed in the open interest for the closest September call strikes alone, and that represents 10 million shares on a leveraged basis.

The Wall Street analysts with recent calls are still positive now that Oracle has acquired most smaller players in the sector.  It looks like the average price target is just above $23.00.  At $21.00, this trades at 17.8-times Fiscal May 2008 projected earnings and trades at 15.7-times Fiscal May 2009 earnings.  With a $107 Billion market cap this also trades at  5.1-times current year revenue estimates and 4.65-times fiscal 2009 (May) revenues.

The chart on Oracle has actually held up quite well and you might not even know the market was in trouble just 30 to 45 days ago if you looked at Oracle alone. 

It will be interesting to hear tonight how Larry Ellison C& Co. will discuss the impact of virtualization, since this is the next ‘next thing.’

With this one up almost 1% today at $21.00 and the multi-year high being $21.13, this one is going to be tough to call ahead of time.  If this gaps up much at all in after-hours trading and/or tomorrow, literally any holder who has purchased the stock since 2001 to 2002 will be profitable.

Here is our preview from the prior quarter for comparison.

Jon C. Ogg
September 20, 2007

Posted on: September 20, 2007 – 1:54 pm in Earnings, Software, , , , ,

Which Company Is Worth More Overall: Adobe or VMware? (VMW, ADBE, EMC, CTXS, MSFT)

When recent IPO’s in tech stocks reach $20 Billion and $25 Billion in market capitalization rates, it is always interesting to see how this compares to other giants in related sectors.  Surprisingly, depending on which source you use, the market capitalization rates are virtually identical for VMware (NYSE:VMW) and Adobe Systems (NASDAQ:ADBE).

Here is how the quarterly earnings and growth rates stack up against each other:

  • VMware showed its financial filings of its second quarter on Monday (which were already mostly known), and the results were $296.8 million in revenues (up almost 90% over Q2 2006) and earnings rose over 100% to $34.2 million, or $0.10 on an EPS basis.
  • Adobe’s earnings which were not previously known also came out on Monday.  The company posted profits of $205 million, or $0.45 EPS on a non-GAAP basis, on revenues of $851.7 million (up 41% from the same period in 2006).  The company did already acknowledge that its growth rates would slow in 2008 because it acknowledges that some growth rates are sustainable for only so long.

Market Cap Comparisons:

  • Based on a 332.5 million share count on VMware and a $77.50 stock price, we get a $25.768 Billion market cap.  The calculations on the true share count create different market caps around the web: Yahoo! Finance lists $25.78 Billion as the market cap, Google Finance lists the share count at 382.94 million and gives it a $29.68 Billion market cap, MarketWatch lists the shares outstanding as 375.12 million and gives it a $29.07 Billion market cap,  and AOL Money & Finance severely undercounts the shares ate twice the free float so its market cap is only listed as $5.82 Billion.
  • Adobe calculated on Monday that for the coming quarter, its share count will be 588 million to 590 million.  Lets split the difference at 589 million and with a $43.50 stock price we get an implied market cap of $25.6215 Billion.
  • If you want to compare other desktop and server software companies and the market caps, here goes: Citrix (CTXS) $7 Billion; Symantec (SYMC) $17.5 Billion; Intuit (INTU) $9.9 Billion.
  • The actual market caps on an exact basis is not the important part of this.  The most important part is looking at the comparison of how close each market cap is to the other.

The truth is that virtualization the next "next thing" and as a sector virtualization is going to enjoy larger growth rates for some time.  It will arguably even be immune from economic shifts in 2008 as the growth rates are coming regardless of the economy.  Maybe virtualization will grow at 50% instead of 70%, but this is still where things are going.

We still believe that if this VMware stock conundrum didn’t exist because of an incredibly low float that shares would not be where they are today.  This is an extremely valuable company and we won’t refute it or even fight it.  Just understand that this low float manipulates that price moves and we have noted already how investors and traders alike are using the various call options in multiple months and multiple strike prices to play the stock as a stealth trading basis.

Read More »

Posted on: September 19, 2007 – 11:57 am in Software, , , , , , , , , , ,

VMware Already Looking Out To Its Next Conferences (VMW, EMC)

VMware (NYSE:VMW) is on of the stocks that no one seems to get enough of.  Part of the reason is more than easy to figure out, because virtualization is the next "Next Thing" and next buzzword for investors. 

But there does exist this stock conundrum because of the EMC Corp. (NYSE:EMC) relationship and ownership.  The float is tiny, so it takes a far lower amount of money in and out of this stock to manipulate the price of a $25 Billion market cap.  To top it off, we noted earlier how investors are starting to use out of the money stock options as a manner of gathering exposure to the company.  While it is risky and while many of the strike prices may expire worthless, it is too hard to blame anyone for using a stock option to play the stock.  We just noted how this new $90 target from an analyst may be hard to justify, but this stock does have a mind of its own.

The VMWORLD CONFERENCE 2007 in San Francisco was a big catalyst for the company.  VMware even announced an acquisition of a private virtualization company after less than a month of being public.  That is good, because the company has a whole lot of market cap to grow into.  It cannot justify that market cap entirely on its own, so more partnerships and acquisitions would make sense.

But interestingly enough, there are some more virtualization conferences coming up.  There was a release out yesterday showing the InfoWorld Virtualization Executive Forum at the end of this month.
What’s good about this is now virtualization is on the map, and this one is in New York closer to the analysts and fund managers that may be looking for other ways to invest in the sector.  VMware also today announced the first annual VMworld Europe conference in Cannes, France from 26th-28th February 2008. 

There are many developments in this space and virtualization is going to be helped by cheaper and cheaper RAM and multi-core processing power.  Now the company itself has to demonstrate that its stock is worth the $25 Billion on paper.

Jon C. Ogg
September 13, 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.

Posted on: September 13, 2007 – 5:55 pm in Software, , , , , ,

Microsoft’s Dividend Hike Not A Bold Move (MSFT, GOOG, VMW)

Last night Microsoft (NASDAQ:MSFT) announced that it was boosting its quarterly dividend from $0.10 to $0.11.  The dividend is payable December 13, 2007 to shareholders of record on November 15, 2007, and the ex-dividend date will be November 13, 2007.  Microsoft shares are up 0.35% after the open, about half of the gains in the broad market.

Raised dividends are usually a good thing, but it also shows the stage that the software giant has entered and we’d rather see more ’special dividends’ rather than a small incremental boost.  If you have read our take on things, you’ll know that this move is one we don’t have the world’s greatest opinion of.  The classical investing model shows that raised dividends lead to higher stock prices, but it also shows that Microsoft is farther and farther away from being a growth stock.  I have even hijacked a phrase "Microsoft isn’t a major growth company anymore, it’s a utility stock!" from a friend of mine at the Federal Reserve.  But we still think it can take a path that leads to higher share prices.

If Microsoft wants to be impressive on its dividend, it should hoard cash and pay these special dividends.  At the end of 2004, the software giant paid out a $3.00 special dividend.  Shares actually traded flat and lower for basically a year after that special dividend, but in the longer-term shares reached over $31.00 earlier this year.  The truth is that the two are unrelated.  The tie isn’t even relevant.  But this is the best way of returning cash to shareholders in what is currently a most tax efficient manner.  We don’t know if the dividend taxes or capital gains taxes will really go up after 2008 or not, but depending on election results there could be some big changes there.

As of June 30, Microsoft held $23.4 Billion in cash and short-term investments.  It also held over $10 Billion in longer-term investments, part of which are stocks in other large public companies.  It holds $8.3 Billion carried under ‘other’ and long-term debt, and its other $23.75 Billion in liabilities are all day to day operations.  After this, you have to back out the $6 Billion or so that the company paid for aQuantive that closed in August.

The company can do share buybacks, but with the size and average daily trading volume it just requires too much capital spent for it to make much sense.  Microsoft has roughly 8 Billion shares in the float and has 9.375 Billion shares outstanding.  If you do the math and do the projections out there for its earnings this year and next, the company could do a serious return of capital.  If investors know that every other year they might receive a $1.00 or higher special dividend they might get more excited than if they receive the $0.11 every quarter instead of the $0.10 previously.  The company should consider this for later in 2008.

The only reason the company wouldn’t want to do this is if wants to go make more and more multi-billion dollar acquisitions like aQuantive.  If it wants to do that, then all bets are off.  This special dividend versus a slight hike in a low normal dividend is also purely a matter of opinion.  Microsoft has been hampered by the likes of Google (NASDAQ:GOOG) and others, and the new virtualization efforts from it and VMware (NYSE:VMW) are going to end up being a mere footnote on a relative basis to Microsoft’s size for the next 12 to 18 months.  We also saw some of the plans in May for a post-Gates era.

We still think Microsoft can reach the mid-$30’s over the next 12 months if it can execute on its many initiatives, and the downside seems less than than the upside at current levels.  The problem is that we had the same viewpoint back in January when we laid out the path that could take Microsoft shares to $36.00.  A myriad of things can change that, and the calendar and upcoming industry trends will determine which side of the crystal ball is accurate.

Jon C. Ogg
September 13, 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.

Posted on: September 13, 2007 – 9:23 am in Dividend, Software, , , , , , ,

VMware Stock Options Being Used For Stealth Stock Ownership (VMW, EMC)

VMware’s (NYSE:VMW) stock options trading has been almost as exciting and puzzling as watching the stock in this post-IPO frenzy since EMC Corp. (NYSE:EMC) launched its partial spin-off in last month’s key IPO. In fact, it may even be more exciting.  With such a low float and demand for the shares much higher than available in the shares the stock options are quite obviously being used as a stealth trade to own the stock.  Buying out of the money calls (and maybe even selling out of the money puts- not yet evident in volume) has to be how traders are participating in the VMware gold rush. 

On Monday September 10 there were just under 10,000 contracts traded in the closest September Calls alone ($65 to $80 strike prices). The October Calls were far less active but go out to January 2008: 1,137 of the JAN $100 CALLS traded.  Someone was betting on a $100.00 stock price by January 18, or at least they are betting for a huge rise even if it never goes in the money.

Yesterday’s options were active as well.  Various call strike prices in the month of September saw another 10,0000 contracts trade hands.  There are still big bets going in the $100 strike price calls for October: There were almost 1,200 of these $100 strike contracts traded for October.  The $100 strike price in JAN-08 Calls saw 441 contracts trade and the $100 strike in the APR-08 Calls saw 582 contracts trade hands.

Just last night, Jim Cramer on MAD MONEY listed this one as one of his draft choices for his ‘fantasy football draft methodology’ for picking winning stocks that won’t be dependent upon Bernanke and rate cuts in a recession.  Traders are making big bets here in the form of options.  On a fully leveraged basis, each 10,000 contracts equates to 1 million shares. 

The company just announced its first acquisition this week and it hasn’t been public a month yet.  It also knows it has this "VMware conundrum" that exists in the EMC-VMware share price to valuations because of the incredibly low float.  Virtualization is going to be huge and the company is going to command some major growth ahead in its revenues and position.  Regardless, the company has a lot of growth it needs to do to catch up to its now greater than $25 Billion market cap. 

Shares are up another 2.5% pre-market today at $78.75, and shares traded as high as $82.75 intraday yesterday.  Options are definitely being used as a stealth-ownership trade.

Jon C. Ogg
September 12, 2007

Jon Ogg produces the 24/7 Wall St. SPECIAL SITUATION INVESTING NEWSLETTER; he does not own securities in the companies he covers.

Posted on: September 12, 2007 – 7:52 am in Options, Software, , , , ,

VMware, Already An Acquirer (VMW, EMC)

VMware (NYSE:VMW) is not wasting any time and not resting on its laurels.  The virtualization leader has been public not even one month yet.  The company today announced at its VMWORLD CONFERENCE 2007 that it has acquired Dunes Technologies, a company that provides IT process orchestration software for virtual environments. Financial terms and conditions of the deal were not disclosed.  This is a bit more aggressive than we would have expected last week, but this company has a whole lot of market cap to catch up to in the form of numbers and results.  This probably won’t be the last deal it ever makes.

Raghu Raghuram, vice president of products and solutions at VMware: "Dunes has developed a powerful orchestration platform that will allow us to automate the entire virtual machine lifecycle from requisition to de-commissioning, while complementing existing VMware management and automation solutions such as VMware Lab Manager and the recently announced VMware Virtual Desktop Manager."

Dunes Technologies was foundedin 2001 has been financed and developed under the leadership of Affentranger Associates.  The company is based in Lausanne, Switzerland with offices in Stamford, CT.

Shares of VMware are up another 2.4% pre-market at $78.60.  EMC (NYSE:EMC) shares are up almost 1% at $19.33 pre-market.  This has been one incredible post-IPO story.

Jon C. Ogg
September 11, 2007

Jon Ogg produces the 24/7 Wall St. SPECIAL SITUATION INVESTING NEWSLETTER; he does not own securities in the companies he covers.

Posted on: September 11, 2007 – 8:20 am in Mergers and Buy Outs, Software, , , , , ,

VMware Rides Its Own Waves (VMW, EMC, MSFT)

Shares of VMware (NYSE:VMW) are up over 3% today above the $72.00 mark. Today marks the intro for the widely anticipated VMWORLD 2007 CONFERENCE. 

The company issued four press releases this morning alone and we’d expect others to be making partnership and general press releases around this conference.  The main expo will run from tomorrow through Thursday, so press releases around the terms "VMWORLD" and "Virtualization" should be many. Many of its competitors and partners have released data ahead of this conference as well, with many stories coming out last week.  Microsoft (NASDAQ:MSFT) made its noise in the virtualization game last week, although it received very little coverage on a relative basis.

We noted Friday how the Goldman Sachs note on EMC (NYSE:EMC) had punished shares of both companies, and it had little chance of seeing any great reception as the market was so negative Friday after the jobs numbers.

As a reminder, VMware’s stock post-IPO high is $73.95.We have noted this ongoing VMware conundrum that exists around the VMware-EMC ties, although that may take a backseat position with this conference being this week.

Jon C. Ogg
September 10, 2007

Jon Ogg produces the 24/7 Wall St. subscriber-based SPECIAL SITUATION INVESTING NEWSLETTER; he does not own securities in the companies he covers.

Posted on: September 10, 2007 – 12:27 pm in Software, , , , ,

Goldman Sachs Note Hits EMC & VMware (EMC, VMW)

Goldman Sachs has removed EMC Corp. (NYSE:EMC) from its beloved Conviction Buy List this morning, although the firm is maintaining an official "Buy" rating.  The catalyst for the initial call was VMware (NYSE:VMW) and the research note says this has played out and investors are one step further in understanding the underappreciated value of core EMC.  The note does remain positive that EMC should continue to be bought as more balanced growth, multiple product cycles, and shareholder value initiatives after the partial spin-off of VMware are going to likely keep a bid under EMC shares.  Goldman Sachs also said the 5% gain since adding it on July 31 was higher than the 1.2% gain in the S&P 500; and on an annual basis that EMC has risen over 65% versus just over 12% for the S&P 500.

A lot of this sounds close to our "VMware Conundrum" from the end of August.  Our subscriber alert is no longer under embargo since the IPO is basically a month old now, and here is what we sent to paid subscribers as a way of profiting on the expected Downside in EMC stock right after the VMware opening.  This was where we compared it to a myriad of other major spin-offs, and gave some downside targets for a very short-term trade. Special Situation Investing Newsletter trials are available.

EMC shares are now down over 1% at $19.15 in pre-market trading, and this $19.89 to $20.00 top is starting to look like a harder and harder hurdle to overcome.  VMware shares are down almost 3% at $67.90 pre-market. As a reminder, we gave note about what to expect from other companies ahead of VMware’s VMWORLD 2007 CONFERENCE in San Francisco next week.

Investors still need to read all about VIRTUALIZATION as much as they can.  The underlying growth that is going to occur at VMware AND in the virtualization space, regardless of how that individual tracking stock reacts, is going to be large enough that everyone will want a larger and larger piece.  Citrix Systems (NASDAQ:CTXS) acquisition of XenSource is just one of many forrays where companies are going to do what they have to do to get in, although many companies will have to use the continued ‘partnership route’ rather than making acquisitions.

Jon C. Ogg
September 7, 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.

Posted on: September 7, 2007 – 8:01 am in Analyst Calls, Software, Technology Companies, , , , ,

A 360-Degree Review of Dell Ahead of Earnings (DELL, HPQ, GTW, STX, VMW)

Dell Inc. (NASDAQ:DELL) will post earnings after the close this Thursday and analysts, according to First Call, have estimates at $0.30 EPS and $14.63 Billion in revenues for the past quarter.  The coming quarter is expected to have $0.33 EPS and $15.1 Billion revenues.  Dell recently said it had completed its own internal investigation and reviews, and it would be filing all of its past financial statements with the SEC.

Dell gave last preliminary numbers on May 31 and shares had closed at $26.91 on that day.  So at $27.20 this morning shares are up roughly 1% since then.  Shares have recovered off recent lows with the market but are basically in the middle of a trading range of $26 to $29 since last earnings.

The chart has looked weak since July, although that coincides with the weak market as well. H-P’s stock chart has also been range-bound since mid-July.  Options can be tricky a day before an event, but it appears that as of today that options traders are braced for a move of up to $0.95 to $1.05 in either direction.  Keep in mind those numbers can change tomorrow and are arbitrary since it is a static snapshot this morning that takes no recent history into consideration.  Wall Street analysts still have the stock price targets north of $32.00.

Its chief rival, Hewlett-Packard (NYSE:HPQ), just beat earnings expectations and gave the all-clear signal ahead for guidance.  To top it all off, Seagate (NYSE:STX) just raised guidance on ’strong pricing trends in hard drives’ and that is not a normal event.  Neither event signals a weak PC-market at all.   Dell has seen some problems causing delays in recent days, so the company will likely need to be specific on shipments ahead.

A development that has come up is the Acer acquisition of Gateway (NYSE:GTW).  Dell may address this as ’stronger competition out of Acer,’ but for whatever it is worth Gateway itself being considered a competitor in the industry has been a moot point for years.  Acer is a more formidable competitor, but Acer and Gateway are already on major retail chain shelves right next to each other.  Based on how little coverage this acquisition has been given it won’t probably be a huge threat.

The last couple of items are important, but may be further out than this and next quarter.  At some point the company will be able to resume its share buybacks since it is now going to be current in SEC filings.  The SEC investigation will keep a cap on that for the time being, but it could be telegraphed as far as an intention.  The other issue is if Dell wants to be a stronger acquirer.  It has made some smaller deals, but it will be interesting to hear if the company plans to transform itself to compete on more fronts against H-P.  That is still an outstanding issue. 

A term will probably start being used more and more after tomorrow…….Virtualization.  Both Dell and H-P already have strong virtualization pacts with VMware (NYSE:VMW), and this market is only going to get bigger.  Much bigger.

Jon C. Ogg
August 29, 2007

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

Posted on: August 29, 2007 – 9:27 am in Earnings, PC Companies, Technology Companies, , , , , ,