Intel buys into VMware

Intel and VMware announced today that Intel Capital is taking a $218.5 million stake in virtualization company VMWare. Intel will purchase 9.5 million Class A shares at $23 per share, which, at the completion of VMware's forthcoming IPO, will give Intel about a 2.5 percent stake in the company. Because VMware's stock is split between Class A shares, which have less voting power, and Class B shares, Intel won't control that many votes in the company, but they will get a board seat.

There are a few good reasons for Intel to get on board the VMware train right now, even if Microsoft is currently gearing up to wreck that train if it can. (More on the Microsoft angle in a moment, though.) First, VMware is currently the market leader in virtualization, especially when it comes to all-important enterprise-level management functionality. Second, VMware is gearing up for what will probably be a successful IPO, given their prominent position in this hot space and given current market conditions. So it's a good bet that Intel will make money off of the VMware IPO. Third, Intel has much to gain by seeing any x86 virtualization vendor succeed, because the chipmaker will sell most of the hardware to make the virtualization market go regardless of who wins on the software side. So an investment in VMware is an investment in growing a vital market for Intel.