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VMware Inc.(VMW - Snapshot Report) unveiled its latest offering in the application platform space with vFabric5. The platform, vFabric5 is set to redefine cloud architectures by providing a modern programming model coupled with next-generation platform services.

Through vFabric5, VMware enables the creation of industry-ready enterprise Java applications for the cloud and virtualized execution environments specially targeted at data-intensive and massively scalable applications. The platform not only supports new approaches to data management, enabling applications to scale across elastic, geographically-distributed cloud architectures, but also addresses the technical challenges of cloud computing.

The new platform also integrates with vSphere by adding a new Elastic Memory for Java (EM4J) that provides a new level of coordination between the application server and the underlying virtual machine. EM4J enables higher Java server consolidation and protects applications against workload spikes without wasting memory.

With this application platform, VMware will be in direct competition with International Business Machines Corp. (IBM - Analyst Report) and Oracle Corp. (ORCL - Analyst Report) in the middleware segment. Statistical data reveals that IBM has earned revenues of approximately $25.0 billion in the middleware software segment in fiscal year 2010. This presents an enormous opportunity for VMware to expand in the application platform market that is dominated by big players.

To enhance its application platform business, VMware has been on an acquisition spree that includes SpringSource and Digital Fuel to name a few. In the past two months, VMware also acquired Socialcast and SlideRocket.

Moreover, VMware recently announced the Cloud Foundry, which is an open source Platform-as-a-Service (PaaS) offering that supports public as well as private clouds on every server. In this segment, VMware faces strict competition from other PaaS providers like Salesforce.com (CRM - Analyst Report), Microsoft Corp. (MSFT - Analyst Report) and Rackspace Hosting Inc. (RAX - Snapshot Report).

Recommendation

VMware has been working on server virtualization and controls nearly 80% of the market globally. This would help the organizational workforce access and derive data that could eliminate location problems, thereby increasing productivity through new-age collaboration and communication models.

We believe the increasing adoption of virtualization and cloud computing technologies will drive growth for VMware over the long term.

Enterprises that are shifting to the cloud need proper infrastructure, which VMware provides through its four key products: vSphere that helps in coordinating and automating computer storage and networking; vShields for virtualized Edge functions and security; vCloud Director to enable cloud functionality; and the recently launched vCenter Operations Suite for management.

We believe VMware is the biggest beneficiary in the adoption of cloud computing and the corresponding shift in IT spending. The server virtualization market possesses huge potential and VMware continues to expand its presence in the datacenter cloud management and security segments.

We have a Neutral recommendation on VMware over the long term (for the next 6 to 12 months). Currently, VMware has a Zacks #3 Rank, which implies a Hold rating on a short-term basis.

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