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VMware, Inc. Message Board

  • vmw_watcher vmw_watcher Sep 7, 2007 8:59 PM Flag

    BULLISH INVESTOR - VMW

    I have been reading the yahoo message board since IPO day. To say the least I am disappointed with the short sellers who are basing their entire investment decision on the P/E ratio.

    Any knowledgeable investor knows that the P/E by itself is a meaningless ratio. In fact, statistical analysis has shown over the centuries that neither high nor low P/E stocks (or general markets for that matter) have a increased likelihood to crash. Ken Fisher, CEO of Fisher Investments, wrote a book entitled "The only three questions that count". Read Chapter 1, especially the chart on page 18.

    When you are finished doing that take in some of the articles regarding P/E. You will find that the general consensus is that PEG or other ratios need to be reviewed in addition to P/E to determine a company's intrinsic value. My favorite line from investopedia, "A common mistake among beginning investors is the short selling of stocks because they have a high P/E ratio." (http://www.investopedia.com/university/peratio/peratio4.asp)

    Some folks are probably screaming, "But it's over 750 P/E!" All that means is that the consenus among the thousands of investors is that this company is really going to deliver a powerful change to the world. Many technology folks can foresee a time when the VMware hypervisor becomes the default pre-loaded operating environment on every server, workstation, and laptop. Apple OS, Microsoft Windows, or any other general purpose OS would be added based on user preference.

    A mid-afternoon stock pop happened today. Has anyone considered that it was a short squeeze? Beginning investors who based their trades simply on P/E thought the stock would plummet like a fiery asteroid. Instead, that day hasn't even come close. Now the major financial journals are covering Virtualization and VMware especially with the upcoming VMworld from September 11-13. I think we saw the fear of the shorts covering positions because the bulls own this stock.

    Many remarks have been around the VMW prices moving inversely to the general market. Although I don't personally care for Jim Cramer's stock picks I agree with his tagline that there is always a bull market somewhere. VMW is the summer blockbuster for 2007. Enough said.

    Compare it to Google, Microsoft, Novell, or other companies, right? Academically this may be fun excercise. Realistically it is a waste of time. Does anyone compare Armani Suits to The Men's Warehouse or JCPenney? They all sell suits but each have different business models with varying quality of goods and services.

    What about VMworld? VMware could have setup VMworld as a VMware-centric event with no competitors. Instead XenSource, Virtual Iron, Microsoft, and many others are exhibitors too! In my opinion that shows an amazing amount of confidence in VMware's product suite! It doesn't make sense to invite a competitor that offers better products and services, does it?

    I could go on and on for hours here. The bottom line is that this company owns 80% of virtualization market today. Estimates are that only 5% of companies are using virtualization today. That leaves a ton of opportunity for VMware to grow. VMware has the customer reference base (100% of Fortune 100, 80% of Fortune 1000). VMware has significant support from Intel, Cisco, AMD, Dell, EMC, and a myriad of other partners.

    BUY BUY BUY!

    Disclaimer: Former Microsoft Employee; Now VMware Employee. My posts represent my personal views and not that of VMware.

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    • Thank you NYCMan and JRStan2 for the assistance.

    • Yes, me too. We are very lucky to have him on board here. Opposition was totally unwarranted.

      JT

    • When is the earning coming out? thanks.

    • "Virtualization does not really fit the hype cycle *yet* because the reality often exceeds the hype. The hype really hasn't started yet."

      I guess that really depends on your point of view, speaking as one that has used VMWare (along with other machine virtualization technologies (primarily UML)) for years it seems like an awful lot of hype to me, however I guess if this is all new to a person I can see how they might be running around shouting "Eureka! this changes everything!" ..... same kind of thing happened when we virtualized collision domains, wan circuits, clients, storage, process/thread mangement, etc.., all good value added technologies, yet only representing incremental evolutionary (as opposed to revolutionary) improvements.

    • "As for 3D Acceleration, have you seen this yet? http://linuxupdate.blogspot.com/2007/07/... "

      Why am I not surprised? It seems like every time I think a particular application cannot or should not be virtualized, I find someone already having good success doing it.

    • Thanks VMW watcher,

      for excellent posts. I have been working on trying to build a business based just on that concept for the average Joe to have a computer that is always updated and they never have to fix it, install programs, etc. No, the gamers would not want my service but many of the people I run into would never know the difference as their computing consists of emails, and internet, and office applications. Of course there are many ways to bring this to the consumer without vmware, but vmware would allow more options.

      It's not always about new technology but new uses of it - look at radio waves - they knew about them for a while before they became utilized and at first they thought there was no use for them!

    • I'm an old timer too and I agree that at any given time, there is at least one technology that is being over hyped. Gartner created something called the "hype cycle" which is used to illustrate and track reaction to a new technology.

      The stages in the hype cycle are humorously named... For example the "Peak of Inflated Expectations" is followed by the "Trough of Disillusionment". Frequently true.

      http://en.wikipedia.org/wiki/Gartner's_Hype_Cycle

      I agree with you that the desktop is going to be a tough nut to crack. I doubt that my kids would appreciate a 20% reduction in the performance of their games. High end graphics may be one of the last areas of adoption but if the graphics vendors get on board, and I suspect they will, it could happen.

      Testimonial: the hard drive on my laptop started failing on the same day I was flying out of the country so we used the VMWare convert utility to allow me to continue using it remotely off another VMWare host while the drive was replaced. When you start to experience the breadth of virtualization possibilities, you see that it's come a long way in recent years. For instance, the VMWare convert utility didn't work that well until recently.

      Virtualization does not really fit the hype cycle *yet* because the reality often exceeds the hype. The hype really hasn't started yet.

      I have no idea if the stock is overvalued as a result of the hype. I'm in it for the long term or until something fundamentally changes.

    • "The benefits of virtualization are not yet obvious to most people outside the IT realm. "

      Been in IT for over 20 years, the benefits of virtual machines are readily apparent, however the concept is nothing new (neither is VMWare) nor is it the best thing since sliced bread. It has it's place, but all this hype (and attendant over valuation of VMW stock) is just typical of the "sexy buzzword of the day" phase that I've seen time and time again during my long career in IT.

      I do find the whole "a virtual machine on every desktop, on every server" day dreaming fairly humorous though.

    • wayward & divenko,

      Your positions are completely understandable. The benefits of virtualization are not yet obvious to most people outside the IT realm. To understand my post, it may help to know that I manage the IT function for a mid-sized public company so I'm "in the biz" as you might say.

      Before taking the virtualization plunge, I heard people make statements like "it will change the way you approach everything" and I thought they must be overstating the benefits. Now I'm one of those folks.

      If the objective of this board is to keep VMW investors up-to-speed on VMW as an investment, maybe it's best to discuss more tangible indicators of VMWare's future performance.

      In an attempt to do that, let me offer a typical IT manager scenario but first, here�s a statement that may sound outlandish but it can be substantiated by trade press or major research firms such as Gartner or Forrester.

      "Virtualization has already achieved critical mass and every IT Manager had better get on board if they want to keep their jobs. Debating the pros and cons of the technology was a discussion for 2004. In 2007, we are placing our orders for VMWare and reaping the benefits of a new infrastructure that is far superior to the old model."

      Two Google recommendations:

      1) CIO virtualization
      2) Gartner virtualization

      My company was a little late to the game. We had other projects lined up for 2007 so I budgeted to virtualize our datacenters in 2008. I should have put virtualization in the 2007 budget and here's how I came to this conclusion.

      We did a pilot in our software development group using the free VMWare Virtual Server. This is how many companies get started with virtualization. As a public company, we must comply with Sarbanes-Oxley which dictates that we maintain test environments for "change management" activities. If you mess up a VMWare test environment, you can restore it in minutes.

      The technology was stable and the performance exceeded our expectations. Once we experienced the convenience of backups / restores that took only minutes and the ability to put an entire test network on a laptop, the possibilities for the production environment started coming up repeatedly. Virtualization was already starting to change our thinking. Paradigm shift?

      I couldn't justify waiting until 2008 to start on the production environment so we purchased our first ESX server license and moved two production servers into the virtual environment. VMWare offers a tool called 'convert' that takes an existing physical server and converts it to a virtual server - beautiful.

      The converted virtual server ran faster in the virtual environment because the host hardware was more current. We've since converted several more servers into this same environment. I estimate that we'll get ten servers on this host.

      Based on our results, I�ll accelerate our virtualization plans for our datacenters around the world which means we'll be placing orders for additional VMWare ESXserver, Virtual Center and VMotion licenses.

      Now consider the IT manager that goes to his boss with a request for yet another $10,000 server that's going to consume $1,500 of electricity each year. His boss just read a Wall Street Journal article and learned that most companies are creating a pile of unused servers by virtualizing their datacenters. If that server request isn't for a virtual host, the IT manager might need to update his resume.

      This scenario is probably typical of many mid-sized companies. It's a win-win-win deal. VMWare wins, VMW investors win, I win.

    • It was very helpful. Thanks.

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