EMC Corporation (EMC): Is VMware, Inc. (VMW) a Value Play or a Trap?

“Virtual growth” is a real challenge
While market dominance is a problem that every company wants, it also means that your business has saturated the market. Management has to now answer that all-important question: What’s next? And I don’t think VMware adequately did this — not to the extent that it justifies the valuation. This is even though recent studies suggest that VMware can still grow its market to 80%. But will it be enough?

CEO Pat Gelsinger said that VMware, Inc. (NYSE:VMW) will move toward selling a suite of products as opposed to just server virtualization, which includes storage, computer networks, and products that will need to be virtualized. That’s all well and good, but aside from reshifting product and service groups, how will that make VMware any more formidable?

Besides, it’s not as if existing products are uniformly better than what Citrix offers with XenDesktop, which, in most cases, costs 50% less than VMware’s vSphere. Likewise, Microsoft Corporation (NASDAQ:MSFT)‘s Hyper-V solution, which is essentially an extension to its System Center ecosystem, should not be overlooked as a threat down the road since it takes an “expansion” approach, which means that Microsoft does not have to reinvent environments that are already running Windows or its Microsoft’s System Center.

VMware has some very important decisions to make as it is beginning to get squeezed. It must also address new markets in order to grow. In the meantime, investors shouldn’t be fooled by Wall Street’s reaction. This has all the makings of a trap.

The article Is VMware a Value Play or a Trap? originally appeared on Fool.com and is written by Richard Saintvilus.

Fool contributor Richard Saintvilus has no position in any stocks mentioned. The Motley Fool recommends VMware. The Motley Fool owns shares of EMC, Microsoft, and VMware.

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