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Virtualization spending strong despite tighter IT budgets

Even as companies tighten IT budgets this year, many have continued to invest in virtualization software to reduce hardware and energy spending, says a new ChangeWave Research survey.

Despite a decline in spending on business software given a waning U.S. economy, an April 2008 survey of IT organizations shows that virtualization software spending has increased.

The survey of about 2,000 respondents by Rockville, Md.-based ChangeWave Research found that overall software spending is on the decline, with only 12% of respondents saying that they will invest in software over the next 90 days, and one in four saying they will spend less. But at the same time, virtualization investments are on the rise, increasing 12 percentage points from 58% in January to 70% today, the survey showed.

VMware Inc.'s April 2008 earnings report is evidence of this; revenues for the first quarter were $438 million, an increase of 69% compared with the first quarter of 2007.

During a question-and-answer session following her keynote address at the Morgan Stanley Technology Conference in Boston on May 21, VMware CEO and President Diane Greene said that in the realm of virtualization spending, the economy has cut both ways.

"We see people accelerating virtualization when their budgets tighten, but you also see the spending decrease. We see both sides," Greene said. "People might look at virtualization on a different schedule now, but everyone is looking to create a fully virtualized environment. We don't know the pace, but we know we are in a very good position."

VMware continues to dominate
According to ChangeWave, which identifies industry changes through surveys, VMware continues overwhelmingly to dominate the virtualization market. Among respondents (who may use multiple platforms), 70% of survey respondents said that they use VMware. Citrix's share jumped five points from a prior survey to 26% and Microsoft picked up three points to 22%. Ten percent of survey respondents said they use IBM for virtualization, and only 6% use Oracle's virtualization product.

Of the 12% of respondents who said they will purchase virtualization products over the next six months, 70% will buy VMware, while 17% plan to go with Microsoft and 15% plan to go with Citrix, indicating the company's momentum. In January, only 7% of those surveyed planned to use Citrix's virtualization software. Leveling out the bottom are IBM and Oracle; 5% of the people surveyed plan to buy their virtualization software.

Why virtualization spending remains strong
Even in a slow economy. Virtualization spending makes sense because the technology delivers immediate benefits, like reducing the number of physical servers a company needs, less maintenance of servers, and lower power and cooling costs, explained Gordon Haff, an analyst at Nashua, N.H.-based Illuminata Inc..

"Virtualization delivers lots of near-term benefits in general -- such as improved utilization. It's not so much about users spending less on hardware but being able to grow at a lower cost and without needing as much space. Those two things are the same at one level, but they reflect different mindsets," Haff said. "Virtualization also lends itself to fairly tactical and bottom-up implementations--it doesn't need to be rolled in as part of a big software project."

Haff said the benefits of long-term power savings from virtualization don't influence virtualization spending as much because power is not included in most IT budgets.

Other than virtualization, security software spending is also still strong and appears to be the only other kind of software in which companies continue to invest, according to the survey.

But business software categories that are getting cut out of IT budgets include enterprise resource planning, followed by document and enterprise content management and relationship management software, ChangeWave found.

The survey also asked respondents if there were any recent changes to their second-quarter capital spending budgets, and 26% said their budgets had been reduced over the past 90 days -- more than three times the percentage who said their quarterly capital budgets increased (8%) last quarter.

Let us know what you think about the story; email Bridget Botelho, News Writer.

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