VMWare 1, server vendors 0

Following EMC's strong fourth quarter results it's safe to say that buying VMware was the best move the company has made. After all, VMware is driving EMC's growth and that's bad news for server vendors.

Following EMC's strong fourth quarter results it's safe to say that buying VMware was the best move the company has made. After all, VMware is driving EMC's growth and that's bad news for server vendors.

Few things in the technology industry are truly zero sum games--except for popularity of virtualization and server sales. There should be an inverse relationship between virtualization, which allows you to run multiple applications on one server, and server sales. IBM's hardware results gave one data point showing the inverse relationship of server sales and virtualization. EMC's financials now offer another. 

EMC reported fourth quarter revenue of $3.21 billion, up 19 percent from the same period a year ago. Net income was $389 million, or 18 cents a share. Backing out charges, net income was 17 cents a share, a penny ahead of estimates. What the results show is a storage giant increasingly turbo charging growth with software acquisitions (VMware, Documentum, RSA etc.)

Meanwhile, VMware appears to be the crown jewel. VMware had fourth quarter revenue of $232 million, up 101 percent from a year ago. In addition, VMware's growth is accelerating. For 2006, VMware had revenue of $709 million. "Our field work suggests VMware will continue to be a driver of EMC's growth, as enterprises rely on the application of this technology to reduce costs," said Daniel Renouard, an analyst at Robert Baird, in a research note. 

Watch those server results closely. If VMware's success is any indication, server makers may have tough sledding ahead.

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