Microsoft (MSFT) is behind in the virtualization software business. Way behind. Wall St.’s perception, which is probably correct, is that recent IPO VMWare (VMW) has the industry lead. The company now has a market cap of $31 billion. Last quarter, VMW made $66 million on $358 million in revenue. That may not be a great deal, but many analysts see the virtualization market more than doubling each year for the next decade.
Microsoft has announced that it will launch several initiatives to catch VMW, one of which is to buy start-up Calista Technologies. Another is a partnership with Citrix Systems (CTXS) which already has a virtualization business.
While VMWare trades at 27 times revenue, Citrix is at 4.7x and has a market cap of $6.4 billion. Citrix is not a pure play in virtualization, so it carries less of a premium. The company is in the application delivery infrastructure business and has some consumer brands including "GoToMyPC".
Microsoft may make the decision to take on the Citrix non-virtualization businesses and buy the company outright. It could also take the non-essential operations and sell them.
Redmond will have to do something beyond going it alone. VMWare has too big a lead.
Douglas A. McIntyre
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