2011: Palo Alto-based VMware plans huge expansion

In one of Silicon Valley’s biggest real estate deals in years, cloud-computing pioneer VMware confirmed Wednesday that it’s expanding its headquarters in the Stanford Research Park, taking over an adjacent 1 million square feet of building space left vacant when pharmaceutical giant Roche moved out more than a year ago.

The move, which brings with it as many as 2,500 new jobs, could make VMware the largest employer in Palo Alto, outside of Stanford University and its hospitals. It’s symbolic not just of VMware’s own phenomenal rise as a leader in the esoteric field of virtualization technology, which essentially turns computers into multitasking maestros, but of a tech-hiring resurgence sweeping Silicon Valley. Some observers say real estate moves like VMware’s, along with increasingly fierce competition for young engineering talent, could be a harbinger of a larger regional renaissance.

“I can’t say exactly when it started, but we’re seeing a very distinct change in the Research Park and around the valley toward a new optimism,” said Jean Snider, managing director of real estate for Stanford University who helped coordinate the corporate musical chairs behind the lease transfer. “There’s a real bullishness out there and it’s not just VMware. All these companies are talking about hiring.”

During a tour this week of the vacant campus, Mark Peek, chief financial officer of the cloud-computing powerhouse, pointed to a huge sculpture hanging high above a deserted courtyard. It was a thunderbolt piercing a brushed-steel cloud, a piece of high-wire artwork that now seems too good to be true.

“Wow,” Peek said with a smile. “We should definitely try to keep that.”

Reportedly beating out Google and others to nail this lush and oak-studded office park, VMware is bulking up in a big way: taking over Roche’s ground lease with Stanford for $225 million in an agreement that expires in 2045, the company is expanding its footprint from 30 to 100 acres, and from five buildings to 22.

After a $30 million renovation, the campus by year’s end will hold nearly twice the 3,500 employees VMware currently has in Palo Alto, about a third of its rapidly growing worldwide workforce.

“This is another indication that Palo Alto really sits at the center of Silicon Valley,” said Palo Alto City Manager James Keene. “We have this unique convergence of talent and leading companies in the tech, cleantech and social networking sectors who all want to call Palo Alto home.”

There’s a certain poetry to the rising prominence of VMware, a company founded in 1998 by a group of engineers who ran it from an un-air-conditioned office in an old house near Town & Country Village. The size of the expansion is a testament to VMware’s pioneering leadership in virtualization technology and cloud-computing infrastructure, tools that allow companies to run multiple operating systems and transfer their computing power to central servers on the Web rather than individual desktops.

Cloud computing is fundamentally changing the way information in the mobile age is stored and processed. And VMware — now owned largely by data-storage giant EMC and arguably the least-known $40 billion market-cap player in the valley — is in the middle of it all.

“VMware’s building the bridge from the past to the future,” says Trip Chowdhry, an analyst at Global Equities Research. “Like Apple, Salesforce.com and Red Hat, they’re one of the post-recession companies that will dictate the tone of the IT industry. And they’re all expanding and they’re all hiring.”

Riding the trend of cloud computing, VMware has increased its research-and-development spending from less than $430 million in 2008 to more than $653 million in 2010. Its workforce has mushroomed from 2,500 to 10,000 in the past four years, with nearly 1,000 job openings currently posted on its website. It holds more than $3 billion in cash, and the company is projecting $3.6 billion in revenue for 2011, up 28 percent from 2010.

Along the way, VMware has picked up a lot of believers: Until last week’s blockbuster debut of LinkedIn, VMware boasted the valley’s biggest one-day gain among IPOs completed during the decade after the dot-com bubble burst, jumping 76 percent the day it went public in 2007.

Gregg Domanico, a broker with commercial realty firm Kidder Mathews, said the sheer scope of the company’s build-out suggests “a huge commitment by VMware, and it says they’re expecting to continue to grow.

“Through all the dips and rises in the valley, the big guys have always brought us back out,” he said. “It was Cisco in the late ’90s, and now it’s companies like VMware. And if they’re in a growth mode, other companies will follow suit and start hiring, too.”

Contact Patrick May at 408-920-5689. Follow him at Twitter.com/patmaymerc.