VMWare’s (VMW) Shares Can Fall More As Microsoft (MSFT) Enters The Market

February 26, 2008 by Douglas A. McIntyre

Microsoft (NASDAQ: MSFT) play a cut-throat game in almost every sector the software market it enters and investors at virtualisation software company VMWare (NYSE: VMW) know that. VMW shares have gone from over $125 to about $58, even thought revenue at the company is growing at about 80%.

Microsoft is about to come to market with its own virtualisation product, which helps servers run multiple programs. To try to stay ahead of Redmond, VMWare has cut a deal to ship its software on some servers sold by Dell (NASDAQ: DELL), Hewlett-Packard (NYSE: HPQ), and IBM (NYSE: IBM). According to the FT "By pre-installing its software on the computers that companies use to run billing software, serve up web pages and perform other essential tasks, VMware hopes to gain a distribution advantage."

Microsoft is about to introduce its Windows 2008 server software which could get is a footprint in the virtualisation business fairly quickly. Just because Microsoft is behind does not mean it will in any way fail to push every advantage to dislodge VMW from its leading position in the market.

By bundling its software into its core server product, Microsoft is taking the fight to the enemy. VMW shareholders better be ready to see their shares go much lower.

Douglas A. McIntyre