VMware Still Soaring; EMC Trails

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

Author: Robert Buderi

Bob is Xconomy's founder and chairman. He is one of the country's foremost journalists covering business and technology. As a noted author and magazine editor, he is a sought-after commentator on innovation and global competitiveness. Before taking his most recent position as a research fellow in MIT's Center for International Studies, Bob served as Editor in Chief of MIT's Technology Review, then a 10-times-a-year publication with a circulation of 315,000. Bob led the magazine to numerous editorial and design awards and oversaw its expansion into three foreign editions, electronic newsletters, and highly successful conferences. As BusinessWeek's technology editor, he shared in the 1992 National Magazine Award for The Quality Imperative. Bob is the author of four books about technology and innovation. Naval Innovation for the 21st Century (2013) is a post-Cold War account of the Office of Naval Research. Guanxi (2006) focuses on Microsoft's Beijing research lab as a metaphor for global competitiveness. Engines of Tomorrow (2000) describes the evolution of corporate research. The Invention That Changed the World (1996) covered a secret lab at MIT during WWII. Bob served on the Council on Competitiveness-sponsored National Innovation Initiative and is an advisor to the Draper Prize Nominating Committee. He has been a regular guest of CNBC's Strategy Session and has spoken about innovation at many venues, including the Business Council, Amazon, eBay, Google, IBM, and Microsoft.