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Trading Activity In NetApp, VMware Spikes

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According to a report from the Wall Street Journal, stocks of both NetApp and VMware have been trading at unusual volumes yesterday.

Trading in NetApp spiked to four times the normal level, with investors picking up 38,000 calls that allow them to buy the company’s stock and 5,000 puts that allow them to sell it. NetApp shares closed at $25.55, up 6.1%.

Fueling activity in VMW trading was the recent chatter that Cisco could be interested in acquiring VMware. With calls outnumbering puts by seven to one, traders gravitated to September $45 calls. The contracts are priced at 70 cents and make money if VMware shares jump above $45.70.

They closed at $38.49, up 4.1%.

What’s All This Talk About VMware Buying Red Hat?

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We were looking at the swirling rumors coming in about a potential acquisition of Red Hat by VMware, and ultimately decided not to cover the rumor because … well because it seems so irrational.

But is that actually so?

This is what BusinessWeek wrote:

Speculation is rife that the company (Red Hat) is a takeover target. “It makes no sense that they’re still hanging out there,” says Eric Gebaide, a managing director at investment bank Innovation Advisors.

One possible suitor is virtualization software company VMware, which some industry executives says is on the lookout for an operating system to add to its portfolio. Former VMware CEO Diane Greene, ousted by her board in July, had set up meetings with Red Hat in part to position VMware as friendly to open source and possibly as a prelude to a buyout discussion, according to a person familiar with the conversations. Representatives of both companies declined to comment.

Ostatic followed up with a snapshot analysis, and now the folks over at Cnet News.com are trying to make sense of such an acquisition.

Ostatic concludes in its post:

A combination of VMware virtualization and a proven, popular operating system could pave the way for a future of healthy competition for VMware with other operating systems that bundle virtualization. I wouldn’t be surprised to see both VMware and Red Hat pursue all of this.

Meanwhile Cnet’s Matt Asay contradicts:

I would think this trend cuts the other way. Red Hat (and Novell) likely see virtualization’s commoditization as a reason to push the knife deeper into VMware. Being acquired by an important but commoditized feature of their operating systems doesn’t sound appealing to me…

What do you think?

VMware

Red Hat

There We Go Again: EMC Shares Rise On Acquisition Rumors

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This is one rumor that just keeps coming back: Reuters is reporting that EMC shares rose as much as 6.3 percent yesterday on market speculation that the world’s largest maker of corporate storage equipment could be acquired. The company stills holds a majority stake in virtualization juggernaut VMware.

Shares of EMC rose as high as $14.92 in trade on the New York Stock Exchange, before retreating to $14.75 in afternoon trading.

EMC spokesman Dave Farmer declined to comment, saying the company never responds to market rumors or speculation. Pacific Growth Equities analyst Kaushik Roy said the most likely company to be interested in buying EMC would be Cisco Systems. Last May, we reported on rumors of a possible merger.

A popular phrase says there is fire where there is smoke, but we’re getting a bit skeptical. These rumors have been floating for years now, and although a Cisco-EMC combo would seem like a pretty logical combination, you can ask yourself if it why a deal would be in the works now, when a merger or full acquisition should have already happened if both companies and their shareholders agreed.

EMC Corporation

Cisco Systems

EMC Reports Strong Q2 Results, Might Spin Off VMware Anyway

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So VMware performed below expectations, but how did parent company EMC do the past quarter? Not too shabby, actually. In its Q2 Earnings conference call (see transcript here), the company outlined that it had performed well against the backdrop of a challenging economic environment, although its outlook for the future was less rosy.

In the second quarter, EMC had revenue growth of 18% (to $3.67 billion), a non-GAAP EPS growth of 20%. EMC’s second-quarter net income rose 13% to $377.5 million, or 18 cents per share, from $334.4 million, or 16 cents a share, a year earlier. EMC backed its January forecast of full-year profit of 78 cents per share, excluding items. It said 2008 revenue would exceed $15 billion, up from its previous outlook of $15 billion.

The results sent EMC shares up a few points, and they got a further boost when EMC opened the door to a VMware spinoff, per report by Reuters. EMC CEO Joe Tucci apparently stated in an interview with Reuters that a VMware spinoff is definitely possible, although it likely wouldn’t happen in 2008.

EMC Corporation

VMware

EMC Shares Up On VMware Spin-out Rumors

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Update: you might want to read this article about VMware co-founder Diane Greene leaving VMware before you read this post. Come back, though 😉

Financial analyst Thomas Curlin of RBC Capital Markets upped his rating on the EMC stock to “Outperform” from “Sector Perform”, even as it trimmed the stock’s price target from $21 to a more modest $19. The focus of his call: the prospects for a spin-out of the company’s stake in VMware.

Curlin notes that the company can spin out VMware to shareholders with minimal tax implications starting in early 2009. In his research note, Curlin writes:

“Management recently has suggested it does not plan to spin out VMware, but if the stock remains at current levels, we believe it could be forced to do so by activist shareholders. This possible scenario is a key aspect of our recommendation upgrade as it provides downside protection in a challenging macro context.”

Curlin figures that EMC is trading at a value of about $6.25 ex its stake in VMW; but he thinks the non-VMW business is worth $10-$14 a share. Shares of EMC closed at $15.05.

[Source: Tech Trader Daily]

What’s Up At Virtugo Software?

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We got an interesting comment on our report on Qlusters calling it quits, which points us to the fact that the website of Virtugo Software has been down for some time. Commenter Blocka suspects the company has gone belly-up, since the phones have been disconnected and e-mails remain unanswered.

Virtugo Software had a powerful virtual management suite called VirtualSuite, enabling system administrators to monitor host and virtual servers in real-time as well as optimize the performance of applications running on the servers in the virtual environment. In April 2007, Virtugo was acquired by uXcomm, who changed its name in Virtugo Software, and in September 2007 they shipped an upgraded version of VirtualSuite, which got quite some positive reviews. The company also subsequently raised about $2 million in venture capital.

After that, it got a little quiet around Virtugo Software, with the exception of a Network World review of VirtualSuite in February 2008. Then one of the co-founders left the company to become a Vice President at Computer Associates last March. Apparently, Chris Dickson fled a sinking ship.

We have an e-mail in with the company for a response, and well update this post if we get an answer.

If anyone has more information, get in touch.