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Wednesday, September 17, 2008

VMware faces pressure from all sides

The squeeze is on.

VMware (VMW) has been hammered lately as its CEO was replaced and the chief scientist walked out. The company was once the undisputed leader in server and desktop virtualization but competitors are making inroads.

We have seen the repeatedly delayed Microsoft Hyper-V virtualization product finally come to market. Several improvements are in the works to make it more robust for enterprise markets (adding the ability to move virtual machines with no downtime, for example) but the product is certainly usable right now. Its integration into Windows Server 2008 makes it a cheap and easy alternative for IT shops using the Microsoft platform.

We have seen Citrix purchase VMware rival Xen. Citrix is throwing its marketing and financial muscle behind Xen to establish the product as serious competition to VMware and the perfect complement to the standard Citrix presentation server implementation.

It is no surprise that IBM is also playing in VMware's sandbox. IBM is large enough that it tends to have some kind of product for nearly every IT segment so of course it has a virtualization product, too.

Server Virtualization versus Desktop Virtualization --

The first approach successfully commercialized was server virtualization. Server virtualization is a generalized term describing the ability to host multiple complete Operating System images such as Windows or Linux (including or excluding a kernel) on a single hardware platform. Server virtualization is often used to consolidate multiple smaller (or older) servers onto a single, large server, without changing how the applications or OS is managed. A software layer known as a hypervisor allows multiple operating systems to run on the same physical hardware.

Desktop Virtualization refers to a thin client architecture in which each user is assigned a virtual machine (OS and applications) in a virtualized server in the network. This means that a user's PC acts merely as a KVM (keyboard, video display, and mouse) over a network to a centrally hosted desktop.

IBM trying to play the disruptor --

The VMware and Microsoft solutions work fine but suffer from certain limitations: VMWare has more complicated storage requirements. Microsoft has less complicated storage and server requirements but more limited choices.

IBM is set to debut a technology at the VMWorld conference in Las Vegas that executives say reduces storage costs for virtual desktop storage by up to 80 percent.

The advantage over Microsoft and VMware: less storage required yielding less complexity, lower cost and faster deployments.

Conclusion --

IBM is so huge this development will not make a significant impact on the company's bottom line. For VMware, however, it is just one more challenge for the company to overcome at a time when the challenges seem to be multiplying daily. When your whole business is virtualization, these kinds of troubles can put a company like VMware on the defensive.

I hate to pile on VMware here at a time when the stock is already under pressure but the company is certainly running into tough times. VMware is not sitting on its hands; it is also making announcements at VMWorld. They are publicizing their concept of the virtual desktop infrastructure (VDI) that will allow users to access their data and applications from practically any device. Unfortunately, this functionality is still in the realm of vapor-ware and not expected to be available until sometime next year or later.

As an investment, VMware's days as a rocket stock are behind it. Despite a strong franchise, the company has many question marks around the impact of its growing competition. For now, investors should be taking a "show me" attitude toward the company.

Disclosure: none

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