Original URL: http://www.theregister.co.uk/2007/08/14/vmware_ipo/

VMware's IPO - Insanity turns Silicon Valley back to normal

Live coverage

By Ashlee Vance

Posted in Servers, 14th August 2007 13:15 GMT

Darling Diary Welcome to The Register's live coverage of VMware's IPO. The world has gone insane over this sucker, and I'm not one to deny ecstasy.

Preamble

It's 6 in the morning here in California, and things have turned palpable.

In thirty minutes, VMware's IPO (initial public offering) goes live. Call it the second coming of Google or the third coming of Netscape. This baby will rock the software world.

VMware - trading on the NYSE under VMW - looks to ship 33m shares at $29 each. That leaves the server virtualization maker hoping to bring in $957m. Most indications have the company blowing past that figure and igniting a Silicon Valley boom. At least, that's what the likes of Citi, JPMorgan, Lehman Brothers, Credit Suisse, Merrill Lynch and Deutsche Bank want us to believe.

I've covered VMware since it was a wee pup in the software game. In the early days, the company ambled along trying to find a market. The founders knew they'd done a good job copying IBM's thirty-year-old virtualization techniques, but they didn't know if the technology would carry over to the x86 server market. Lucky for them, the economy imploded and x86 chips improved, leaving customers trying to get the most out of relatively cheap hardware.

A few years passed and VMware sold itself to EMC for $635m in 2003. Damn does that look foolish now.

VMware's IPO target values the software maker at about $10bn, since EMC is only selling off 10 per cent of the company. But, really, who cares? VMware's management is rich and will get richer no matter how you slice it. Now the plebs with stock options can make some coin too. Take that, Google.

The market - and the likes of Intel and Cisco that have fallen over themselves to put money in VMware - want nothing to do with reservations about the IPO. They abandoned any inclinations to embrace reality long ago. There's no room for reality when a company increases revenue between 90 per cent and 100 per cent per quarter.

Okay. Here's me drinking a few cups of coffee before the Jungian collective orgasm begins in earnest.

The Grumbles

6:25 - Okay, five minutes to go.

Had to get my morning constitutional out of the way early today. I don't want there to be a mess when that bell rings.

Can you believe these jokers were only seeking a $100m IPO back in April? Does EMC's Joe Tucci have any idea what this beast is worth? Do the Wall Street guys advising EMC and VMware?

Makes you wonder.

Vgasm

6:30 - Ding, ding, ding!

There's VMware's chief Diane Greene and husband/co-founder Mendel Rosenblum ringing the opening bell. I could see Mendel hoot while watching BloombergTV. I think he was freaking as visions of sugar plum billions danced in his head.

The TV anchors can't stop talking about VMware. "It's the biggest tech IPO since Google," we're told.

No shit, genius.

"Its software allows server computers to run two operating systems at the same time - virtually," says the TV guy. "Jefferies already has a buy rating. That's very unusual to get coverage from the sell side on the same day as a market debut."

Who has time for the usual? EMC is up. Cisco is up. Intel is up. Anyone who even looked at investing in VMware is up.

Kill Negatron

6:41 - 11 minutes in. Stocks are giving back their early gains, we're told. That's not what "the market" wants to hear before VMware shares actually begin moving. Has heaven turned to hell?

"We are living under a negative cloud that is effecting everything," says a pundit. "The market has the look of a market that wants to trade lower."

Pipe down, old man. There's a bull out there, and it wants to get loose.

Sweating

6:54 - Holy hell. The first trade that I can see has come in at $50 per share. That's a 72 per cent rise, friends!!!

Brace, brace, brace.

Yes, yes, yes

7:07 - Communist China can't imagine what this is like.

You should be trying to sell your child right now just to clear some extra cash to buy into this thing.

Mattel is recalling some toys. Give those to the kid I just sold.

Back to VMware, the mayhem continues.

I'm seeing 12.6m shares traded already, and the stock up almost 75 per cent at $50.60. VMware should have a higher market cap than Google by noon.

Sun stroke

7:19 - If it stopped trading right now, VMware would close the day with a valuation just about equal to that of Sun Microsystems.

Sun? Sun!

Come on, people. Sun has hardware decaying in warehouses. VMware sells software. Soft - ware.

VMware has put those candy ass open source and Web 2.0 software companies that are meant to be destroying the world to shame. It took an old-fashioned, proprietary coder to make us all rich. This is the way Bill Gates wanted things. It's the right way to live.

Lehman Twins

7:28 - Someone just sent me an e-mail demanding that I spell Lehman Brothers correctly. Who has time to spell?

The shares seem to have stalled at $50.10. That's only a 73 per cent rise. Let's all put our brains together and see if we can't double that by 8 a.m. Like I said, do it for Bill Gates. Do it for America.

We've been up as much as 90 per cent today. That's more than $20bn in justice capitalization. Push, push, push.

Greene with Money

7:37 - Do you want to know how to get rich? I'll tell you.

VMware's CEO Diane Greene has discussed her youth with me. She used to sail. She used to race boats. She went to the University of Vermont. "The head of my department who went to MIT said, 'You know - you love sailing and engineering. You should go to MIT and study naval architecture.' And I looked into it and said, 'Yeah, you're right. That's a really good idea.'"

Off Greene toddled to MIT where she ended up doing tons of computer science as part of her ocean engineering and naval architecture work.

We could have ended up with virtual submarines, but Greene quit school and work in favor of wind-surfing in Hawaii. That's how you get rich.

Wall Street Socialisturnal

7:42 - Uh oh. Amanfrommars - you know who he is - just chimed in with a one word comment. We're either on the verge of Armageddon or about to create Heaven on Earth. I can't tell which. Time to call Art Bell.

What's wrong with the other reporters out there? "VMware shares soar in IPO," says the Wall Street Journal. I thought you guys were about promoting free markets?

Bechs Billions

7:50 - "It's the biggest tech IPO since 2004," Bloomberg tells us. "Demand for this type of deal shows that investors are comfortable owning large companies with positive demand going forward."

Wow, how much is insight like that worth? History shows us that investors are comfortable owning tiny companies with no demand moving forward too.

Anyway, Sun co-founder Andy Bechtolsheim is getting richer by the second. He was one of the initial investors in VMware. He was also the first guy to throw money at Google and, of course, Sun. Brainy engineers shouldn't make billions in their sleep. They should be locked in a closet doing the hard work for the rest of us when they're not being bullied by gorgeous bankers. Still, it's lucky we acquired Bechs from Germany. Good job, Carnegie Mellon. Pat on the back, Stanford.

How long will we keep being able to say things like that?

Bend over, Justice

8:06 - Um, okay. The shares have totally crapped out at $51.29. I didn't get up at 5:30 a.m. for a 77 per cent gain. I've had six cups of coffee and have been eating nothing but chocolate cake. I've got a stripper, her ass and some cocaine on standby for when VMware's shares double. Come on, people, she's charging by the hour.

You're not having second thoughts, right? You're not wondering how VMware can keep up revenues like this what with its competition giving away a product VMware sells for about $5k per socket? You're not thinking that the entire world is looking to get a cut of VMware's action, right? You're not noticing that VMware's profits have already started dipping as it spends and spends and spends, right?

Have You Tasted My Segbutter?

8:29 - This is just great. My apartment is equidistant between the headquarters of Google and VMware. I feel like the Czech Republic with Germany and Russia eyeing my way of life.

I probably could have bought a house here in 1954 after the big syphilis outbreak. Things aren't looking good now though.

Mental note: First step, get a garage. If that fails, make up company with no vowels in the name and claim that you're a virtualization toolbar maker used by most of the Fortune 22,000. If that fails, put a gyroscope in a jar of peanut butter and call Jeff Bezos, Steve Jobs and John Doerr.

There's an outside chance that I'll have to shower and go into work. You can tell that my boss is British. He wouldn't know capitalism if it splatted all over his face.

The Wisdom of Me

9:15 - So, there's the Wisdom of Crowds. And then there's the mind-trampolining genius of markets.

Sometimes, however, these mechanisms need a punditry boost - a bellow of optimism so bold that it rattles wisdom and markets into their more natural states - higher. With that said, I'll go ahead and beat out Merrill Lynch with a $500 price target/Paralytic Buy on VMware.

I can't stand to see the shares languish at $51.19.

VMware will be bigger than Microsoft in five years. Beyond that, it mixes proprietary and open source worlds. That's cash money intermingling with freedom. $500 may be reserved. Hope I don't regret that.

On Cheese and Washed Cars

10:31 - Oi, Justice. Get ready.

We're up 86 per cent now. My good cheer did the trick, and VMW has hit $54.00 per share. There's plenty of time to double down.

Before I do that line of coke, let's get reflective. Here we are turning back to a chat with Greene, talking about VMware's early days.

"I called myself the president. We didn't have a CEO. It seemed that with five people having a CEO is just weird. I was the only one with any business experience and wasn't really doing any engineering. I was setting up payroll, choosing the wastebaskets, picking furniture and negotiating the lease.

"We got a little one room office above the Cheese Store in the Stanford Shopping Center. And then, about four years later, we made the big jump to the car wash behind the shopping center on El Camino Real."

House of Venom

11:25 - Uh oh. Someone better slaughter a goat quick.

With great IPOs, comes great scrutiny. Some muckraker wants to ruin the party by suggesting that VMware violates Linux intellectual property. This chowder masher is calling VMware a "House of Cards."

Frankly, my dear, "the market" doesn't give a damn. Go back to your commune and write some more drivers.

VMware blew my date with Justice

1:54 - Well, VMware has ended the day at $51 per share. That's a 76 per cent rise on opening day and probably good enough for some people.

It's not even close to good enough for me though. Justice just left the office without me ever being able to make good on our deal. I'm questioning capitalism, the American Way and the power of positive thinking.

I'm sure the folks at VMware are getting blasted right now in some New York bar. Or maybe they've already bought a party plane like Google and are having a Dionysian dork fest at 30,000 feet. That's all well and good for them. But what about me and you? We're left with nothing more than shattered dreams or departed hookers or something like that. ®