EMC's (EMC) VMWare IPO Gets Big Boost From Intel (INTC)

Douglas A. McIntyre

Excitement about EMC’s (EMC) IPO for its virtualization software company VMWare has already helped push the storage company’s stock from just over $10 to over $18.

And,  VMWare received a significant vote of confidence as Intel (INTC) invested $218 million in the company and will hold 2.5% of the shares post IPO.

According to MarketWatch the Intel investment is meant to “foster strengthened inter-company collaboration towards accelerating VMware virtualization product adoption on Intel architecture.”

The investment is likely to give EMC’s shares a good deal of help, but the Intel investment is strange and may be an example of “hold you friends close and your enemies closer.”

Virtualiztion software allows servers to share the load of running multiple applications. VMWare’s own description of its advantage is this: “Each virtual machine exists as a small set of files that simulate an entire hardware platform, including the CPU, RAM and network ports. This powerful technique breaks the “one server, one application” regime.”

In layman’s terms that mean that, over time, companies will need fewer servers, which is bad for server companies like HP (HPQ), Sun (SUNW), and IBM (IBM), but will also cut demand for Intel and AMD (AMD) chips.

Perhaps Intel just wants to keep tabs on VMWare development.

Douglas A. McIntyre can be reached at