VMware Ups Price Range In Run-up To IPO

The company now expects the initial public offering of its Class A common stock to price between $27 and $29 per share, up from the $23 to $25 per share range it expected in its previous filing late June, according to the latest modification of its S-1 filing with the Securities and Exchange Commission.

Executives from the Palo Alto-based company are in the midst of a two-week road show, during which they are presenting to analysts, fund managers and prospective investors in order to generate interest in investing in the company.

Wall Street expects the IPO to come on August 14.

Storage giant EMC said in February that it will sell a 10-percent stake in VMware through an IPO in a move to help VMware employees realize more value from the company independent of what they receive as part of the overall EMC organization.

EMC acquired VMware in December of 2003 for $635 million.

The company plans to sell 33 million Class A shares, with an additional 4.95 million shares being granted as an option to underwriters.

As part of its filing, VMware released several facts that may give Wall Street cause to expect this to be a very successful IPO.

For instance, VMware said that the market for its virtualization products is large and growing, including 24.6 million x86 servers and 490 million business client PCs installed worldwide as of last December. Under one million of those servers and five million of those PCs are running virtualization software, VMware said, quoting IDC statistics.

VMware also said a majority of its revenue comes from its indirect sales channel of over 4,000 partners including distributors, solution providers, system integrators and vendors. That network is growing quickly, with 600 new partners having signed up with VMware in the second quarter of 2007, and 400 new partners in the first quarter, according to the filing.

VMware, in its explanation of potential risks, said that it depends heavily on two distributors for 29 percent of its 2006 revenue. One of those, Ingram Micro, accounted for 29 percent of its revenue in 2006. "If we were to lose Ingram Micro's distribution services, such loss could have a negative impact on our results of operations until such time as we arrange to replace these distribution services with the services of existing or new distributors. We believe that we could replace the revenues earned from Ingram Micro's distribution services in a relatively short period after a loss of these services and that the negative impact on our results of operations due to such a loss would be short-term," the company said in the filing.

VMware also works with over 200 technology partners via open APIs and other arrangements, the filing said.

Its current customer list includes all the Fortune 100 enterprises and over 840 of the Fortune 1000 companies. It currently has 20,000 organizations worldwide in its customer list.

Revenue in 2006 was $703.9 million, up 82 percent over the $387.1 million it reported in 2005. Revenue for the three months that ended June 30 was $296.8 million, compared to $156.4 million for the same period last year.

Of the approximately $866.2 million to $997.2 million that VMware could get as net proceeds from the IPO, the company will use $350 million to pay back intercompany debts to EMC, to buy a new headquarters building from EMC that cast $127 million, and as working capital and funds to finance growth, develop new products, fund capital expenditures, and make potential acquisitions.

Interest in the IPO has intensified recently thanks to two strategic investments in the company in July.

Late last month, Cisco invested $150 million for approximately 1.6 percent of VMware's total outstanding common stock, which is less than one percent of the combined voting power of VMware's outstanding common stock.

The move came after Intel said on July 9 that it invested $218.5 million in VMware.