VMware Shares Shrug Off Oracle Threat

Analysts don't see serious near-term competition.
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SAN FRANCISCO - VMware (VMW) - Get Report returned to shareholders Tuesday what it took on Monday, when Oracle (ORCL) - Get Report appeared to be gearing up a competitive threat.

Shares of Palo Alto, Calif.-based VMware were recently up $10.44, or 13%, to $90.80, reassured by a bullish Citigroup analyst report. Brent Thill wrote that Oracle's virtualization software, announced Monday, "does not affect VMW's position as the de facto standard in server virtualization." VMware is an investment banking client of Citigroup.

Oracle's unveiling of VM, which stands for virtual machine for open source Linux business server environments, shook virtualization leader VMware, which fell 8% on Monday.

But the jury's still out as to whether VMware can avoid a slowdown to its 90% growth rate.

Should VMware be worried? "Not today," says Gartner analyst Donald Feinberg. But Oracle is closing the window on VMware's long-term growth potential, he adds.

As hardware makers such as

Hewlett-Packard

(HPQ) - Get Report

add virtual machine management to their servers and partners such as

Quest Software

(QSFT)

take on desktop virtualization, "it's becoming less and less obvious that there's going to be a need to have something like VMware."

Citigroup's Thill wrote that he doesn't believe Oracle's virtualization software will have a short-term impact on VMware, which maintains a two-year technology lead. He said use of Oracle's VM "will be limited to Oracle-dominated shops, which are a rarity in today's heterogeneous enterprise datacenters."

But as Oracle begins to add management capabilities to its open-source virtualization in a year or so, and

Microsoft

(MSFT) - Get Report

builds virtualization into its Server 2008 software, businesses will have fewer reasons to turn to VMware, Feinberg says.

"We remain the only vendor that has the full" end-to-end virtualization infrastructure management package, Parag Patel, vice president of alliances for VMware, said Tuesday. "Oracle is

only providing one piece of the puzzle."

Oracle is now another distributor of Xen open-source virtualization, Patel said, saying he doesn't see any new engineering from Oracle.

IDC analyst Mike Fauscette says Oracle probably added virtualization capability because it was seen as a hole in its software offerings. "It's a check-off, a piece of the software stack they didn't have yet. Customers will be happy to see it."

Adding virtualization helps Oracle toward its stated goal of achieving application and process integration, built on open standards, across its entire product line, Fauscette says.

Oracle has claimed its virtualization software was three times more efficient running Oracle applications than competing virtualization software in its own benchmarks. The company stated it wouldn't support its applications running in virtualization environments other than its own. That conflicts with VMware's perception of Oracle's stance.

Oracle had previously said it will support its applications running on VMware, according to Patel. "We haven't had a competitive overlap with Oracle."

Oracle didn't respond to a request for an interview.

Feinberg says Oracle's official position has always been not to support its applications running on VMware, although it supplies known fixes as problems arise.

Oracle's offering "does not address the capabilities required to achieve the cost savings and IT simplification that customers are realizing everyday from VMware's Virtual Infrastructure," Patel said. Oracle's lacks VMware's key features, including high availability, integration with third-party backup software and extensive hardware certifications, he added.

Oracle's claims of a three-fold performance improvement are unsupported, Patel said. "Performance testing can be tweaked in a lot of different ways."

Patel says Oracle hasn't resolved the pricing and licensing of Oracle application software running across virtualized data centers without penalizing customers for the proliferation of copies in virtual machines.

On Tuesday, VMware expanded its lead with the announcement of Server 2, the newest update to its free server virtualization download. The company added a web-based management interface and support for Windows Vista and the beta version of Windows Server 2008 software, among others.

"I don't see

Oracle's announcement having a broad near-term impact," Gordon Haff, IT consultant at Illuminata, wrote in a blog post on CNET.com Monday. "Rather, I see this as Oracle determined to keep making its statement ... that, someday, the operating system won't matter."