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.

• See our exclusive interview with Ed Walsh of VirtualIron, a virtualization competitor.

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

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."

• Jim Cramer had recently noted these in overlooked tech and we noted just last week how some of the estimates from William Blair were conservative compared to the pack of analysts for 2008.

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

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

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.

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:

• EMC & VMware are part of the window dressing stock plays;
• Analysts have to play catch-up to original price targets;

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.

• 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

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.

• VMware’s magic starting to look like wizardry….
• Microsoft comes into the fray.

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.

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.

• With a spin-off of Bungie Studios there may be more to look at.
• Cramer thinks that Microsoft may continue acquiring ad properties.
• Its last seen short interest….
• HealthVault is a move into healthcare.
• It is going deeper into virtualization.
• Would Microsoft buy Yahoo!?
• A post-Gates Microsoft?

Jon C. Ogg
October 16, 2007

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?

Wall Street has estimates set at $0.65 EPS & $1.27 Billion revenuesfor fiscal December 2007, and has $0.92 EPS and $1.84 Billion revenuesfor fiscal 2008.  With the hype of virtualization and the ever-cheaperprices of multi-core processors and ever-cheaper DRAM prices, you knowthose numbers are probably way too low if you are like myself and muchof Wall Street that believes virtualization is "the next next thing"for the IT sector and investors. So lets pretend that the companymanages 30% better earnings and 20% better growth in revenues using thecurrent expected growth rates.  You’d have nearly  $0.84 EPS and $1.6Billion in revenues for 2007, and then using the same upside surpriseAND the expected growth rates on top of these new hypothetical numbersyou would end up with a magical $1.54 EPS and $2.78 Billion in revenuesfor fiscal 2008.

Forget the 2007 projected P/E ratio of 156right now and the 2008 projected P/E ratio of 110.4.  Use the newmagical "upside surprise" numbers and the new forward P/E ratio is120.95 for 2007 and ‘only’ 66-times for 2008.  These almost becomeacceptable at this point.  But with a roughly a $38.9 Billion marketcap and even with the sustained upside surprise to revenue growthmodels, this would have an implied forward revenue multiple of 24.3 for2007 and 14 for 2008.

At today’s current valuations, it ispossible that VMware stock is trading at anywhere from over 3-times tounder 5-times the sales of the entire virtualization marketindustry-wide to 2010.  These levels aren’t just starting to look likemagic.  They are starting to look like wizardry.  It is even nearlyimpossible to blame traders for using stock options as a "less risky way" of having  exposure to the stock.

This isn’t one of Cramer’s "new four horsemen of tech"but it may be the horse trader.  When you start calculating EMC Corp.’s(NYSE:EMC) 86% ownership valued on paper before flooding the marketwith VMware shares at $33.45 Billion and compare it EMC’s own marketcap of $45.7 Billion, you will begin to scratch your head evenconsidering EMC ran more than 50% since announcing the partial spin-off.  The math starts getting fuzzy.

Keep in mind that with extremely low-float stocks of this sort, logic may not prevail for quite some time yet.  Even after lofty analyst projections,it has continued. Very soon, analysts may have to either boost their targets or make the dreaded "downgrades based upon valuation" calls that would be rather unpopular.  If the company doesn’t vote to allow employees tobreak the lock-up dates early or if EMC doesn’t vote to release Inteland Cisco (and maybe even some of its own VMW shares) early from the180-day lock-up periods, then you could literally see another 4-monthsor more of this.  Stranger things have happened, and in the stockmarket you can still go bankrupt even if your thesis ultimately provestrue.

We are getting ready to release our updated "watch list" of small cap Internet stocks to subscribers of our Special Situation Investing Newsletter,and trials are available.  Our watch list is not all only made ofactive buyout targets today, but under the right circumstances any ofthese could easily become subsidiaries of larger web-based properties.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.

Jon C. Ogg
October 10, 2007

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

• 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.