VMW

Lets look at VMW, VMware,once a behemoth in server virtualization. The chart looks interesing considering the fact that it has broken out above it’s channel. But the looming overhead resistences,pushes me away from this stock till it crosses above 113 on above average volume. The guys who are eager should only buy small position and double it up after it goes 3% beyond all time high on heavy turonver. Belwo

What Does This Company Do?

VMware is the largest global vendor providing virtualization software for server operating systems. Over 80% of the company is owned by storage technology firm EMC. Although the company maintains a large direct sales effort, it counts nearly 10,000 partners that include systems builders, resellers, distributors, and systems integrators. Almost half of the company’s sales are generated outside the United States.

Server consolidation has driven the adoption of VMware’s virtualization technologies. In data centers, the standard practice is to run one application per operating system to increase reliability. As each operating system runs on a separate server, IT research firm IDC estimates that less than 10% of a typical server’s capacity is used. VMware’s software improves utilization by allowing multiple operating systems to run on a single physical server. Unlike many IT fads, we believe server consolidation will persist because of savings in hardware, power, cooling, and real estate.

However, VMware is no longer the only option to virtualize servers, and we believe the basic component of a virtual server, the hypervisor, will be commodified during the next few years. Citrix’s CTXS Xen, Red Hat’s RHT  KVM, and Microsoft’s MSFT Hyper-V are all free alternatives. The competitors lack some high-end features but have recently released new versions that dramatically reduce the functionality gap.

Let’s crunch some numbers. Earnings look exciting and will keep on growing specially with increase in IT infrastructure spending.

Moreover the IT professional in your company won’t disagree the data below. In current era of return on investment, companies such as VMW tend to thrive.

Year EPS High ($) Low ($)
2007 0.82 125 48
2008 1.05 86 17
2009 1 45 19
2010 1.51 91 41
2011 2.17 111 74
2012 2.6
2013 3.06
Last 4   Quarters EPS % Change Sales (million) %Change Fund Owners
Q4 0.48 50% 843 33% 710
Q3 0.55 62% 921 37% 710
Q2 0.53 36% 942 32% 801
Q1 0.62 35% 1060 27% 839
P/E 46
P/E 5 Year Range 16-155
Earning Growth 34%
ROE 22%
Cash Flow/Share 2.8
R&D Expense of sales 20%
Debt 9%
Beta 1%
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