Why did Intel invest $218.5 million for 2.5% of VMware?

Why did Intel invest $218.5 million for 2.5% of VMware?

Summary: It's been all over the media that VMware filed its IPO so that it could sell 10% of its stock to the public and that very quickly after that offer was made Intel Corporation paid $218.5 million to purchase 2.

SHARE:
TOPICS: Intel, VMware
0

It's been all over the media that VMware filed its IPO so that it could sell 10% of its stock to the public and that very quickly after that offer was made Intel Corporation paid $218.5 million to purchase 2.5% of VMware. This is not really a startling move. Intel has invested in many companies. It appears that Intel wants to be invited to every computing party. Their motto seems to be "we'll bring the chips, you bring the dip." Let's look a little closer into this investment. Why do you suppose Intel would want to invest over two hundred megabucks in VMware?

First and foremost, Intel hopes to see the value of its investment rise. That hope, however, is just the beginning of Intel's hopes.

Intel is looking for ways to convince the market that they need to walk away from older Intel technology as rapidly as possible to adopt newer, faster Intel technology. After all, Intel, and its competitors have been pumping up the power of microprocessors for decades and they want to sell their products. Unfortunately for Intel, the processors have increased in power to the point that its far beyond what most consumers and many companies can consume with a single workload. This little fact, of course, inhibits the purchase of new, faster systems. Why would these people invest in new hardware when their current system may only be 10% to 15% utilized?

So, Intel, and its competitors, have been seeking out ways to persuade people to do more with computing. This would mean more processor performance and new system designs would be very desirable. Thus, Intel has reached out to any community that consumes a great deal of processing power and tried to help them consume more. Intel's reached out to folks in the open source community, folks involved with animation, geophysical research, architectural engineering, physics research and just about anyone else they could think of. The bigger the computing party, after all, the more chips Intel can sell.

What does this have to do with VMware? Good question.

Another very good way to consume more processing power is through the use of virtual processing software. In this case, virtual machine software (a portion of the virtual processing segment) makes it possible for many workloads to simultaneously reside on a single system. Organizations and some individuals then have an incentive to replace several perfectly workable, older systems with a smaller number of newer systems. Intel and its partners are all happy to sell them new systems to replace their older Intel-based systems.

So, it's clear that Intel wants to influence the direction of VMware (and many other companies in each of the virtualization segments) to use features found in its products that are not duplicated in competitors offerings. This would mean that it might be possible that VMware would perform its function slightly better on Intel-based systems than on systems sporting someone else's processor. Intel's powerful marketing department, in conjunction with the marketing teams of Intel's partners, could turn that small advantage into more sales of their products than of those offered by competitors.

How can Intel influence a company like VMware to do what it wants when Intel is already a VMware partner and competitors, such as AMD, are also VMware partners? Easy, invest in the company. This investment would make it possible for Intel to get a seat on VMware's board. As we all know, a great deal of influence can be applied from that position.

The next question is where will Intel go from here? It wouldn't surprise me at all if Intel invested in XenSource, Qumranet, SWsoft and other who are working hard to to make it possible to better utilize the power of today's and future systems.

Where do you think Intel will go next?

Topics: Intel, VMware

About

Daniel Kusnetzky, a reformed software engineer and product manager, founded Kusnetzky Group LLC in 2006. He's literally written the book on virtualization and often comments on cloud computing, mobility and systems software. In his spare time, he's also the managing partner of Lux Sonus LLC, an investment firm.

Kick off your day with ZDNet's daily email newsletter. It's the freshest tech news and opinion, served hot. Get it.

Talkback

0 comments
Log in or register to start the discussion