VMware's debut seen as strong despite weak market

By Jessica Hall

PHILADELPHIA, Aug 10 (Reuters) - EMC Corp.'s (EMC.N: Quote, Profile, Research) VMware unit, which sells software that companies use to manage data centers, is expected to be one of the strongest initial public offerings of the year despite debuting amid turbulence in the global financial markets.

VMware, whose software allows companies to run a single-server computer as if it were multiple machines, is slated to price on Monday and begin trading on Tuesday. The company would have an implied market capitalization of $10 billion if the IPO prices at the midpoint of expectations.

"There's a lot of spotlight attention on that particular stock," said Francis Gaskins, president of research firm IPODesktop.com. "They almost have to surpass expectations not to disappoint people at this point,"

This week, EMC said it expected the VMware offering to price between $27 and $29 per share, up from its previous estimate of $23 to $25.

"This deal seems to have a life of its own," said Sal Morreale, who tracks IPOs for Cantor Fitzgerald in Los Angeles.

"Even in a market that has fluctuations, you can still have a deal that does really well. This appears like it will have a warm reception despite the market (drop), but it's a day-by-day situation until it prices," Morreale said.

VMware's IPO comes as the broader financial markets wilt. The Dow Jones industrial average was down 1 percent on Friday, adding to a 2.8 percent drop on Thursday.

Concerns about the subprime credit market have snowballed into broad liquidity concerns globally. Limited access to credit could infect all aspects of the economy if corporations slash capital investments and curtail acquisitions, and consumers reduce their spending, analysts said.

This week, the IPO market was mixed amid the stock market gyrations.

Cross Match Technologies Inc., which makes fingerprint scanners, postponed its IPO due to market conditions, while the American Depositary Shares of biotechnology research firm WuXi PharmaTech (Cayman) Inc. (WX.N: Quote, Profile, Research) surged as much as 38 percent in their debut.

Despite the skittish tone of the overall market, VMware is still expected to have a strong debut, analysts said.

In recent quarters, VMware has seen its sales double from year-earlier results as its technology becomes more broadly adopted in corporate data centers.

Its software helps companies save money by reducing the number of computers they need to run their businesses, making it an investment that companies can justify even in times of tight cost-controls, analysts said.

Still, some market analysts cautioned investors not to overhype VMware's offering.

"When you build a stock up this much before the IPO, you have to wonder what's for the encore? How will this company do in the aftermarket?" Gaskins said.

"If you look at the last so-called blockbuster IPO this year -- Blackstone -- the aftermarket performance has been bleak," Gaskins said.

Six of the 10 largest IPOs globally this year have fallen from their offer prices, according to research firm Dealogic.

The two largest U.S. offerings of the year -- private equity firm Blackstone Group (BX.N: Quote, Profile, Research) and MF Global Ltd. (MF.N: Quote, Profile, Research) -- have dropped 20 percent and 18 percent, respectively, amid weakness in the financial services sector.

However, the third-largest U.S. IPO, wireless telephone company MetroPCS Communications Inc. (PCS.N: Quote, Profile, Research), has jumped 24 percent from its offer price. (Additional reporting by Jim Finkle in Boston)