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We believe that VMware (NYSE:VMW), majority owned by EMC (NYSE:EMC), will benefit from increasing use of private computing clouds by businesses. Businesses are adopting internal computing clouds to help save on hardware costs. Demand for computing clouds can slow expected declines of VMware’s market share in the virtualization software market.

88% of VMware’s Value is Virtualization Software

VMware’s virtualization software constitutes 88% of the $62 Trefis price estimate for VMware’s stock. Virtualization software allows companies to increase the utilization of their servers by allocating server resources to software applications independent of the underlying operating system required to execute the application. This helps businesses to save money that would be spent on purchasing additional server and storage hardware.

Market Share in Server Virtualization to Improve

VMware provides private cloud computing solutions to businesses in the form of vCloud software. We believe that demand for vCloud and related storage virtualization software will help VMware drive demand for its server virtualization software.

VMware’s server virtualization market share for 2009 was about 46% versus our earlier estimate of 44.5%. Earlier we had expected VMware to lose market share due to lower priced product offerings by competitors. We have upgraded our outlook for VMware’s server virtualization market based in part on demand for cloud computing software.

We now expect VMware’s server virtualization market share to decline at a slower rate than before, reaching 36% by the end of the Trefis forecast period compared to our previous estimate of 31% .

Disclosure: No positions

Source: Private Computing Clouds Are a Money Maker for VMware