Jefferies lifts price target of VMware

September 1, 2010 10:36 AM EDT

Jefferies & Co. increased its price target on shares of business software maker VMware Inc. to $70 from $65, while maintained its ‘hold’ rating.

VMware held its first annual investor day in San Francisco on August 31. VMware introduced new products across the automation, development data center and desktop spectrum that move them many steps closer to realizing their strategic vision as a turnkey provider of private and public cloud enabling technology, Jefferies said in a report to clients.

Jefferies expects VMware to introduce new technologies

“VMware delivered a highly technical investor day, detailing a new set of technologies that expand its strategic vision as a provider of private and public cloud enabling technologies. The long-term operating margin is expected to stay in the 27 percent to 28 percent range, but could trend lower to fund growth,” said Katherine Egbert, an analyst at Jefferies.

The analyst said the most important of VMware’s new products is vCloud Director, a new suite of private cloud automation and management tools. The new product is an automation layer on top of vSphere, vCenter and the new vShield technology.

VMware also announced vShield, i.e. virtualized security that includes user cloud-based identity authentication technology (acquired from TriCipher), and virtual firewalls, which can be wrapped individually around a VM by default. vShield Manager can be used to plug in virtualized third party security appliances, such as virtual intrusion protection systems, Jefferies said.

Must Read

Sponsorship Link

Like us on Facebook

The analyst said the company’s last new product is vFabric, an updated version of technology acquired from SpringSource, which combines a lightweight application server, global data management, cloud-based messaging, dynamic load balancing and application performance management.

The analyst said vFabric can be used to create web scale applications and services. The goal here is to enable application performance and portability across heterogeneous cloud environments.

View 4.5 is a step in the right direction. VMware's new version of it hosted virtual desktop software moves the company closer to full desktop virtualization by separating the user's Windows profile from the underlying OS. It offers support for offline use - a huge advantage-, thin application provisioning, and tiered storage, Jefferies said.

While VMware still lags behind Citrix in hosted virtual desktop technology, the analyst believes the release of View 4.5 allows VMware to be in the running for more scalable desktop virtual initiatives.

“The company’s chief operating officer Nielsen said VMware has booked more than $10 billion in lifetime revenue. Summing quarterly billings in our model back to 2005 equates to $8.8 billion. Affording some leeway for the pre-2005 period, we estimate VMware currently has about $1 billion in off balance sheet backlog,” said Egbert.

Investment risks include competition from larger vendors such as Google and Microsoft, an uncertain rate of uptake of cloud services and virtual desktop infrastructure, dependency on enterprise licenses for a large share of revenue, and a potential takeout of all of EMC, Jefferies said.

VMware shares closed Tuesday at $78.42 on the NYSE.

This article is copyrighted by International Business Times, the business news leader