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Investment Overview for VMware (NYSE:VMW)
Below are key drivers of VMware's value that present opportunities for upside or downside to the current Trefis price estimate for VMware:
Percent of Servers Virtualized: We currently estimate that the percent of servers virtualized by VMware would grow from 19 percent in 2011 to 30 percent by the end of our forecast period. There could be more than a 15 percent downside to our current Trefis price estimate if this growth slows to 25 percent by the end of our forecast period. This can happen if other players enter the virtualization market. With companies like Dell entering this space in 2011, this is a likely downside scenario. However, if VMware's percentage share of servers utilized increases to 35 percent in the same period, there could be a potential 20 percent upside to the current Trefis price estimate.
VMware Market share: We expect market share to decline gradually from 44.5 percent in 2011 to 40 percent by the end of our forecast period. If market share drops to 35 percent in the same period, we can expect a potential downside of 10 percent to the current Trefis price estimate. This can happen due to increased competition from new entrants such as Dell and existing competitors such as IBM and HP. However, if its market share was to remain constant till the end of our forecast period, we can expect an upside of 10 percent to our Trefis price estimate.
VMware is the leading software virtualization company worldwide. EMC is the company's largest stakeholder with an 80% share. EMC also consolidates VMware's results within its own operating results.
VMware's virtualization software can be categorized into two primary segments:
Desktop Virtualization Software
- Allows users to run multiple operating systems on a single desktop or notebook. For example, by using VMware's desktop virtualization software, a user can run Apple's Mac OS X from within a Microsoft Windows machine
Server Virtualization Software
- Allows companies to increase the utilization of their servers by allocating the virtualized resources of server hardware to multiple applications, in a manner that is independent of the underlying operating system required to execute the application.
High Virtualization Market Share
We believe that VMware had a dominant 45% market share in the virtualization software market in 2011.
Increasing Virtualization Software Competition
Microsoft, Citrix, Oracle and many others have come out with their own versions of virtualization software. Partnerships by competitors could reduce VMware's share gains; for example, HP's ProLiant servers now offer built-in support for Citrix' XenServer.
Increasing Adoption of Cloud Services
Businesses are shifting from legacy systems to cloud based systems as this helps reduce costs by resource pooling and allows for easy scaling of applications. Cloud services drive virtualization and as cloud services get popular, we expect the demand for virtualization to grow.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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