Intel said it plans to buy a $218.5 million (£108.4m) stake in the software firm VMware, bolstering the companies' existing agreement to run the software maker’s virtualisation products on Intel's processors.
Intel has been selling chips since November 2005 with specialised technology that allows enterprise IT managers to use a VMware application that treats each hardware platform as multiple "virtual" platforms. The companies also cooperate on their marketing and product development strategies.
The chip giant will make the purchase through its investment arm, Intel Capital, subject to approval by US antitrust regulators.
The purchase will be part of an initial public offering (IPO), in which VMware plans to sell 10% of the company in the hopes of raising as much as $740m. VMware has not set a date for that sale, but it is expected to happen in the second half of 2007. In addition to purchasing stock, Intel will also gain the power to appoint one of its executives to the VMware board of directors. However, Intel will still hold a minority stake in the company, with just 2.5% of VMware stock, according to an IPO registration form filed Monday by VMware with the US Securities and Exchange Commission (SEC).
The majority of VMware stock – 89 percent – will be held by EMC, the enterprise data storage company that acquired VMware in January 2004 for $6354m. That investment has paid off well, since VMware has grown quickly. VMware revenue rose 82% last year, from $387.1m in 2005 to $703.9m in 2006.
VMware says that growth rate will continue, since currently just a small fraction of existing servers and business desktop and notebook PCs use virtualisation software. At the same time, many companies use only a portion of their computing power, because the latest multicore processors have allowed their processing power to grow faster than workloads.
To solve that problem, businesses can use virtualisation software to separate the operating system and application software from the underlying hardware. That allows them to combine multiple servers, storage and networking units into pools of capacity they can allocate wherever it is needed most, VMware said in the SEC form.
Coming so close to VMware's stock offering, Intel's investment is likely to generate greater demand for the new stock, and for the virtualisation industry in general, one analyst said.
"Intel likes to know it has a more personal stake, instead of waiting for market forces to advance the application of virtualization software," said Richard Doherty, research director at The Envisioneering Group. "It's not like that money was gathering dust on their shelf, but Intel's venture arm tends to trigger others to invest in an industry sector too."
The purchase also underlines a growing problem for software firms that have historically charged their licensing fees per processor, Doherty said. In this age of quad-core chips and virtualised server networks, that model could spell trouble for enterprise software providers, who could see their customers doing more work with fewer seats of software. By taking a stake in VMware, Intel is indicating that it sees virtualisation firms claiming some of that revenue.
VMware has also just launched Lab Manager 2.5, a new version of its lab automation software. IT organisations use the application to efficiently manage their software development and testing labs, save money on IT management and deliver new software applications to market sooner, the company said.
In a separate announcement, Borland Software said it would integrate Lab Manager 2.5 with its Lifecycle Quality Management application, SilkCentral Test Manager 2007. Together, those applications will allow software developers to test their applications across multiple configurations using virtual platforms, instead of having to own many separate, physical test labs