Microsoft (MSFT) puts pressure on VMware (VMW)
Posted by: in Companies Competitive StrategyFiled under: Industry, Competitive strategy, Microsoft (MSFT), Dell (DELL), Hewlett-Packard (HPQ), International Business Machines (IBM)
The server virtualization business is the next big thing in corporate computing as it grants servers to run several programs where before they might have been able to run only one. That allows enterprises to save on hardware costs. The leader in the industry has been VMware (NYSE: VMW), which had its IPO less than a year ago. The company has had red-hot growth rates and is very profitable.
As is true in all things involving software, though, Microsoft (NASDAQ: MSFT) wants a piece of the action [subscription required]. It is about to launch software to compete with VMware. The name of the new product line is Hyper-V.
As VMware gets ready for the challenge from Microsoft, it is forming alliances with IBM (NYSE: IBM), Hewlett-Packard (NYSE: HPQ) and Dell (NASDAQ: DELL) to ship its software pre-installed on some of their servers.
According to The Wall Street Journal, “VMware customers aren’t ready to state they will switch, but seem to welcome the competition.” Microsoft’s new product is bad for VMware no matter how Wall Street wants to slice it. After hitting $125.25 post-IPO, VMW share are now below $59. The company has operating margins of 20% and is still growing at a rapid pace.
Microsoft knows how to enter a market: come in with a good product, tie it to Windows and price the new software to squeeze competitor margins. VMware is in for the fight of its life.
Douglas A McIntyre is an editor at 247wallst.com.
Entries (RSS)