As virtual machines catch on, VMware’s field gets crowded

Quoting from Investors:

When EMC (EMC) capped a 2003 acquisition spree by buying VMware for $635 million, it almost seemed like an afterthought.

But as EMC is learning, big things sometimes come in small packages. VMware has enjoyed a commanding lead in “virtual machine” technology. And while it generates a small fraction of EMC’s total sales, it’s emerged as one of the firm’s fastest-growing businesses.

Now the big question is: Can VMware stay on that growth path? It faces a raft of competitors, including a vastly improved version of Microsoft’s (MSFT) rival virtualization software and open-source alternatives.

According to IDC, the company had more than half of the virtual machine market in 2004. It overtook longtime leader IBM, (IBM) which in addition to its own virtualization technology uses VMware for its Intel-compatible servers.

But VMware faces mounting competition from Microsoft, which is close to launching an upgrade to its Virtual Server software.

“VMware has already dropped prices because of Microsoft,” said Gartner analyst Thomas Bittman. And new chip technology from Intel and Advanced Micro Devices (AMD) could make virtualization software easier to produce. That could intensify competition.

Eventually, Microsoft plans to make virtualization part of its basic Windows operating system – rather than a software add-on….

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