Microsoft set to challenge VMware with Hyper-V

SAN FRANCISCO (MarketWatch) -- VMware Inc.'s public offering in August brought virtualization technology to the general public and gave the company a large, and early, head start in the market.
Microsoft Corp. introduced Hyper-V, the beta version of its virtualization software technology formerly known as Veridien.
Microsoft's Hyper-V debut came earlier than many technology analysts had expected, and it sets the software giant up for possibly releasing a full version of the virtualization technology in the first half of 2008, or about six months ahead of many expectations.
Virtualization is a technology that allows software applications and operating systems to be separated from their hardware systems and then shared over servers and storage infrastructure. Businesses then use virtualization technology to better manage large pools of data over fewer hardware systems.
The technology became a hot topic this year after EMC Corp. spun out 10% of its ownership stake in VMware. EMC still owns about 86% of VMware.
While VMware is considered the leader in virtualization, and has a head start of several years over many of its competitors, the entrance of Microsoft is seen as something that can't be ignored, even if it may be a year or more before the company shows signs of taking a significant part of VMware's market share.
Walter Pritchard, an analyst with Cowen & Co., said in research note that the reports Microsoft gets from the beta version of Hyper-V will be go a long way toward gauging the company's success in the virtualization market, and that Microsoft would be better off delaying a full release if it means ensuring a well-made product.
"Positive feedback would make it more likely Hyper-V becomes a legitimate challenger to VMware," Pritchard said. "The offering is too important for Microsoft to risk quality in order to ship early."
Pritchard said that Microsoft's entrance into virtualization shows "real competition is likely," and estimates that Hyper-V's performance could help the company's shares outperform the overall market by 10% over the next year.
Microsoft shares rose 58 cents to $35.81 Friday, while VMware gave up 98 cents a share to trade at $95.04.
At Citigroup, analyst Brent Thill said that despite Microsoft's entry, "VMware's competitive position remains unchallenged," and that he expects Hyper-V will initially lack importance features such as being able to move live virtual machines on the fly and dynamic load balancing.
However, Thill believes that Hyper-V will gain a foothold in what he called the "less demanding" small-and-medium business market and corporate server environments where Microsoft's Windows operating system dominates.
Thill said that since Hyper-V will be a feature of the Windows Server 2008 release next year, Microsoft will have several "home turf advantages" in the market.
Thill said those advantages include the fact that about 67% of data center servers already run Microsoft's Windows Server operating system and customers that run Windows Server are already comfortable with Microsoft's products.
Source: marketwatch.com