EMC Spins VMWare

EMC announced plans to spin off their VMWare division.

I believe that the spin-off is a way for EMC to take some money off of the table. They will continue to own 90% of the company, but they will take advantage of their first-mover status to make some additional money from their product.

This is a really good strategic/financial move for them. It allows them to take advantage of the hot market around virtualization and at the same time reduce their risk exposure in an increasingly competitive/crowded market. Microsoft/Novell/Linux/etc. may take share away from VMWare’s position in the future with competing virtualization technologies.

VMWare stock may have a lot of risk as well and to me it looks suspiciously similar (financially) to the Palm IPO by 3COM. Of course, Palm has a very confusing story and being a value investor, I’m hesitant to touch that stock with a 10 foot pole.

In the end, there are a number of really interesting and new virtualization technologies, many of them Open Source, which will probably win out in the end. Xen and KVM are the two technologies to watch in that space.