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VMware surges almost 76% on its first day of trading8-14-07 4:07 PM EDT | E-mail Article | Print ArticleSAN FRANCISCO (MarketWatch) -- VMware Inc. shares climbed almost 76% Tuesday in a strong debut from EMC Corp.'s software spinoff, which raised nearly $1 billion from tech-hungry investors.


Palo Alto, Calif.-based VMware (VMW) sold 33 million shares at $29 a share as Wall Street embraced a profitable firm that specializes in technology that boosts the power of Web servers and data centers.

The IPO priced atop its boosted $27-$29 range despite volatile market conditions, with some investors viewing the tech sector as a relatively safe haven from the financial and real-estate turmoil that's rippling through stocks.

The stock ended the day up by $22 to close at $51 a share.

It marked the year's biggest stock-market debut in terms of one-day gains, according to data from Thomson Financial. The previous record was held by Fortress Investment Group, which jumped 68% on its Feb. 8 unveiling.

"This is a milestone for VMware," said Chief Financial Officer Mark Peek. "We still believe we're in the very early stages of virtualization, but this reaction says a lot about our market and our products."

What's made VMware a hot commodity is its virtualization-software technology, which is used by companies to simplify how they manage their system hardware from their software applications. The technology allows more efficient use of business systems and can help cut down on those systems' costs.

VMware bills itself as the leading provider of virtualization solutions, a category forecast to grow from $5.5 billion in 2006 to $11.7 billion by 2011, according to IDC.

Jeffries & Co. analyst Katherine Egbert called VMware "the first significant new infrastructure software vendor in over a decade," saying in a research note that the company "is on a trajectory that mirrors Microsoft (MSFT), Oracle (ORCL) and Veritas in [their] early days."

Egbert said she expects VMware to use the proceeds from its IPO to build up its suite of virtualization-management products in order to solidify its position ahead of the release of similar technology from Microsoft.

Egbert initiated her coverage of VMware with a buy rating, and a $42 price target that was eclipsed shortly after the stock went public.

With 375.1 million shares outstanding, VMware will carry a market cap of about $11 billion based its $29-a-share IPO price.

That's about 17 times the $635 million price EMC (EMC) paid in 2004 to buy the company. EMC is holding on to 87% of VMware's outstanding common stock and 98% of the combined voting power of the shares.

"IPO investors are in for a treat this week," Renaissance Capital said, in a note published Monday. The company could be "one of the most anticipated tech offerings since Google's (GOOG) debut nearly three years ago."

VMware last week boosted its estimated price range from the earlier level of $23 to $26.

"Given VMware's dominant position, compelling growth prospects and a proposed valuation with lots of room for upside, VMware's IPO is bound to make a big splash in its debut," Renaissance Capital said.

VMware reported preliminary second-quarter net income of $34.2 million on revenue of $297 million for the three months ended June 30, compared with net income of $15.2 million on revenue of $156 million in the year-ago period. Income surged on sales of its software that helps businesses boost the computing power of Web servers.

Late last month, Cisco said it would purchase $150 million Class A shares in VMware held by its parent Cisco (CSCO) for a 1.6% stake in a move to collaborate on offering virtualization software to its customers.