Software maker VMware prices surge as much-anticipated IPO debuts

SAN FRANCISCO — Shares of rapidly growing software maker VMware Inc. increased more than 70 percent Tuesday morning in one of Silicon Valley's most anticipated stock market debuts since Google Inc. mesmerized Wall Street three years ago.

Eager buyers quickly sent VMWare's shares soaring to nearly $50 per share from an initial public offering price of $29.

Reflecting the intense interest in VMware, the IPO price already was a 21 percent premium above the $24 per share target set before management gave a series of presentations to money managers during the past two weeks.

The so-called road show apparently wowed investors, enabling VMware to boost its offering price despite the recent downturn in the stock market.

After expenses, Monday's sale of 33 million shares raised about $900 million for VMware, listed on the New York Stock Exchange under the ticker symbol "VMW." The IPO also generated a big payoff for its controlling stockholder, EMC Corp., a data storage specialist that bought the Palo Alto-based VMware for $602 million in January 2004.

Hopkinton, Mass.-based EMC is retaining an 87 percent stake in VMware, worth $9.5 billion, based on the IPO price. VMware's market value stood at $10.9 billion after the IPO.

Analyst Paul Bard of Renaissance Capital's IPOhome.com considered VMware "one of the most compelling high-tech companies to go public since Google."

Propelled by the online search leader's moneymaking prowess, Google's stock has increased by more than six-fold since its IPO priced at $85 in August 2004.

VMware's products help make corporate data centers operate at a lower cost by enabling a single computer function like multiple machines — a process known as "virtualization."

The market has been booming, with VMware raking in most of the business.

With 3,000 employees worldwide, VMware is on pace to hit $1 billion in annual revenue for the first time in its 10-year history. The company's sales through the first half of 2007 totaled $555.5 million, nearly doubling from $285.5 million at the same time last year. VMware profit through the first half of this year more than doubled to $75.3 million.

In the year before the EMC acquisition, VMware earned just $4.6 million on revenue of $74.2 million.

VMware's success enticed Silicon Valley heavyweights Intel Corp. and Cisco Systems Inc. to buy a piece of the action.