VMware Still Soaring; EMC Trails

8/15/07Follow @bbuderi

The Dow is flat today, but VMware (NYSE: VMW) is skyrocketing. A day after its debut at $50 a share (a whopping 72 percent premium over what it was priced at by parent EMC), the stock was up another nearly $9 a share this afternoon, to $59.00. Parent company EMC (NYSE: EMC) is inching higher, up about 2.5 percent for the day so far at $18.80.

Now here’s a conundrum. Even after the IPO and pending sales of shares to Intel and Cisco, parent company EMC will still own 87 percent of VMware’s shares. At $59 per share, that 87 percent is worth almost $17 billion—almost half of EMC’s own market capitalization of about $39 billion. The market anticipated that the VMware IPO would be hot, but not this hot. Now that EMC’s asset suddenly has a value so much higher than predicted, why aren’t investors piling onto EMC itself faster?

Arguably, the market has already priced the VMware IPO into EMC’s stock, which has, after all, climbed more than 35 percent since March. But if VMware’s sales keep up the strong pace set in the company’s second quarter, it might not be surprising to see EMC get a bit more of a ride on its own subsidiary’s coattails.

UPDATE Friday August 17 7:08 a.m.: Local Virtualization Firm Hoping to Ride the Wave of VMware’s Success

Bob is Xconomy's founder and editor in chief. You can e-mail him at bbuderi@xconomy.com, call him at 617.500.5926. Follow @bbuderi

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