VMware Shares Dogged by Dell Storage Strategy

SAN FRANCISCO -- Given the coverage earlier this week of Dell's(DELL) acquisition of privately held EqualLogic, investors can be forgiven for getting the erroneous impression that the deal poses problems for virtualization software darling VMware(VMW).

Following Dell's announcement, shares in recent-IPO hotshot VMware dropped 4% on Monday, hitting a level they hadn't seen since numerous target-price revisions moved the stock upward of $120 on Oct. 29.

On Wednesday, shares had fallen more than 4% to $106.21, marking a drop of about 12% since Oct. 29. While some pullback could possibly have been foreseen in an issue that doubled in its first two months of trading, the Dell news seems to have halted VMware's momentum like nothing else.

Several reports have been lumping EqualLogic into the "virtualization company" category and comparing it side by side to VMware.

But as a maker of storage systems, EqualLogic doesn't compete with VMWare. In fact, the two work together.

"EqualLogic is hardware," says Parag Patel, VMware's vice president of software and storage alliances. "VMware infrastructure software interacts with EqualLogic's network storage."

Moreover, VMware is vendor-neutral, optimized for storage equipment and protocols from numerous hardware vendors.

The comparisons get even hazier when a software developer is touting its virtualization capabilities.

Virtualization software enables companies to run multiple operating systems on a single server, helping businesses make more efficient use of equipment and reduce energy consumption. Server use is currently estimated at 15%, but virtualization software typically raises that to 60% or better.