In the magazine, Eric ponders those who missed out on Google’s (GOOG) IPO and who may have decided they weren’t going to make the same mistake with VMware, which, after last week’s stellar debut, is now the third-largest software firm behind Adobe (ADBE), in second place, and Oracle (ORCL).
Eric is optimistic about VMware’s software, which lets IT staff buy few computers because they can put more operating systems, and, hence greater workloads, on each individual server computer. Eric points out that companies such as Siebel Systems, bought by Oracle, and Salesforce.com (CRM), are part of the traditional enterprise software sell, where the vendor tells you to buy big-ticket purchases to optimize your business.
VMware, by contrast, tells you you can save money with each purchase of its software, notes Eric. While it’s cheaper to buy EMC stock at this point in time, or even that of Citrix (CTRX), a competitor, “I wouldn’t short VMware,” says Eric.
I think Eric makes a strong case for why VMware’s one of the most formidable software operations to come down the pike in a while. In my own piece, I argue EMC shares are undervalued. That’s because with EMC still owning most of VMware, the company’s stock should carry an embedded value close to the market value of VMware shares. Instead, EMC’s gotten a roughly 40% haircut on the embedded VMware value.