Cloud Computing VMware and CA both look like early leaders after recent acquisitions

March 22, 2010 Scott Zeller szeller@needhamco.com 617-457-0903 Infrastructure Software Cloud Computing VMware and CA both look like early leaders after recent acquisitions This report includes commentary on VMW and CA During the past 12 months, both CA and VMware have been acquiring assets which are geared towards cloud based computing. The recent acquisition of Nimsoft by CA on March 10 th has prompted us to review the strategies of both CA and VMware, as they build up their capabilities in cloud computing. Our key takeaway is this: both CA and VMware appears to be striving for a one-stop-shop model for cloud computing (create + manage), which is on track to be a $15B market by 2016. Our viewpoint at a high level today is that VMware is increasingly perceived as a leader for creation of cloud applications. In our view CA looks positioned as an early mindshare leader in the management of cloud applications. In terms of financial impact, we believe VMware (VMW- BUY - $59 target) may prove our estimates too conservative for CY10 and CY11 as vblock and recent acquisitions drive more virtualization and cloud projects. Financial impact for CA (CA BUY - $27 target) is likely to be shown in additional bookings wins through FY11, as customers re-up contracts with CA and addon cloud-type projects. Reiterate BUY on VMW and CA, no change to estimates. The race is on in cloud computing infrastructure VMW and CA have made good acquisitions. Over the past 12 months, VMware has acquired assets including Hyperic, SpringSource, Zimbra, and Configuresoft, among others. CA has also been on an acquisition spree, purchasing NetQoS, 3Tera and Nimsoft, among others. In our view, these acquisitions have given both CA and VMware early leads in the race to be a leader in cloud computing and private cloud computing a market which is anticipated to be vast, but has no clear leader at this time. Cloud computing it s early, but the race for assets has begun. There are various definitions of cloud computing and who benefits. We are using Forrester s PaaS definition of the market, which is specific to the development of cloudenabled solutions, or platforms as a service and is on track to be a $15B market by 2016. At this time, there is no clear leader in cloud computing, though several giants including CSCO, HP, IBM, EMC, CA, BMC, VMW, and ORCL are all jockeying for an early leadership position. With recent strategic acquisitions they have made, we believe CA and VMW are emerging as early leaders in the cloud computing race Vmware in creation and CA in management. Reiterate BUY on VMW and CA, no change to estimates. Shares of VMware recently traded at $53, and our $59 target is 38x CY11 $1.44 EPS and 8x EV/CY11 revenue. Shares of CA recently traded near $23, and our $27 target is 13x our $1.85 FY11 EPS estimate

The race is on in cloud computing infrastructure VMW and CA have made good acquisitions. Over the past 12 months, VMware has acquired assets including Hyperic, SpringSource, Zimbra, and Configuresoft, among others. CA has also been on an acquisition spree, purchasing NetQoS, 3Tera and Nimsoft, among others. In our view, these acquisitions have given both CA and VMware early leads in the race to be a leader in cloud computing and private cloud computing a market which is anticipated to be vast, but has no clear leader at this time. In the chart below, we illustrate how both VMware and CA have made acquisitions in the essentials of cloud computing assets in the groupings of tools, management, and applications. Each of the acquisitions below are additive to the core technologies for cloud found at CA and VMware; in the case of VMware, the vsphere offering was itself a sizeable suite of virtualization and management applications for constructing cloud applications. In the case of CA, Wily and other core technologies were cloud-centric, even before the recent acquisition spree. VMware and CA gathering cloud assets through acquisition Applications/Creation Monitoring/ Sys Mgmt Tools/development Source: Needham & Co, LLC Market size. We are using the Forrester market size for cloud computing which is based on platform as a service. The following is from VMware s press announcement (Aug 10, 2009) of its acquisition of Spring/Hyperic, and references the Forrester figures for cloud computing. Together, VMware and SpringSource plan to further innovate and develop integrated Platform as a Service (PaaS) solutions that can be hosted at customer datacenters or at cloud service providers. These solutions will allow customers to rapidly build new enterprise and web applications and run and manage these applications in the same dynamic, scalable and cost-efficient vsphere-based internal or external clouds that can also host and manage their existing applications, providing an evolutionary path to the future. Forrester Research expects the emerging and rapidly growing PaaS market to expand to $15B by 2016. (Platform-As-A-Service Market Sizing, July 13, 2009) 2 An Investment Analysis by Needham & Company, LLC

Recap of recent acquisitions: Below, we recap our previous comments on recent acquisitions by CA and VMware. CA acquires Nimsoft (Mar, 2010) The purchase by CA of private company Nimsoft for $350m in cash is notable for a few reasons. Firstly, the valuation of the deal is uncharacteristically aggressive for CA, at roughly 10x CY09 GAAP revenue, and 6x CY09 bookings. Secondly, the Nimsoft acquisition is a clear signal to the technology community that CA is serious about getting into cloud computing. We view this acquisition, along with other recent deals for 3terra, NetQoS, Cassatt and Oblicore, as a strong collection of assets for CA to take a leadership position in cloud computing management. Financial impact of transaction is moderate, at (0.03) dilutive in upcoming FY11, and breakeven in FY12. We view CA as a serious player in cloud, when considering the recent acquisitions, plus the Wily CA division. It is likely CA will perform better in renewals in FY11 and FY12, as old contracts are negotiated to include add-ons for cloud, giving us increased confidence in our CA estimates. Adjusting FY11 for moderate dilution. Maintain BUY and $27 target. CA acquires Nimsoft. Private company Nimsoft will be acquired for $350m in cash, deal to be closed by end of MarQ. Nimsoft is a company we are familiar with, and was impressive, as it was the only new company in systems management we know of which is actually capable of replacing a monolith solution such as IBM Tivoli, HP Openview, and others. Nimsoft was most likely purchased by CA for its reputation as a cloud-friendly technology essentially a best in class performance monitoring technology for cloud applications. Nimsoft also represents a solid mid-range enterprise offering for CA. Deal metrics. CA has until very recently been a value buyer but has changed its tune with the recent NetQoS deal (3.5x ttm revenue) and with Nimsoft (roughly 10x CY09 GAAP revenue of $32m, +18% y/y, and 6x CY09 bookings of $54m, +32% y/y). We believe these valuations indicate CA is willing to pay up to gain leadership in cloud-friendly computing. Nimsoft is cash flow positive over last 12mos, and has grown revenues in double digits since 2004. Guidance is unchanged for MarQ (F4Q10), and calls for (0.03) EPS dilution in FY11 and breakeven in FY12. We are adjusting for FY11 dilution. CA purchases NetQoS (Sept, 2009) CA acquires private NetQoS for $200m cash. This morning, CA announced its acquisition of NetQoS, a private company in Texas. The rationale for this deal is to add to CA s capabilities in traffic and application monitoring, (Wily acquisition) which has been a long-time strong performer Details of the transaction. NetQoS did roughly $56m in 2008, yielding a transaction multiple of 3.6x revenue. Our estimate is that NetQoS grew 30%+ in the last few years, and we anticipate such growth is attainable when NetQoS is part of CA. There was no conference call held. The transaction is to be slightly dilutive to EPS for FY10, and is to close at the end of CY09. An Investment Analysis by Needham & Company, LLC 3

VMware acquires SpringSource/Hyperic (Aug, 2009) Last night s acquisition of SpringSource by VMware for $362m in cash and stock is the largest acquisition VMware has made. Details were very sparse, and it is clearly an acquisition of strategic nature, intended for future impact. SpringSource is a Java-based application development platform, and owns recently acquired Hyperic, which we believe was a desirable systems and application monitoring technology. Both SpringSource and Hyperic appear to be cloud-applicationfriendly, which is the reason we believe VMware was interested. We are not changing estimates until the close of transaction, scheduled for September. VMware buys SpringSource. VMware made its largest acquisition by spending $362m in cash and stock on SpringSource, a Java-application development platform which is privately held and has 150 employees. VMW is assuming $58m in unvested options, as well. There was no disclosure of bookings, revenue, ASPs, nor growth rate of SpringSource. The company is a subscription revenue model, expected to be cashflow positive in 1H2010 Guidance reiterated for revenue, mild dilution. Previous SeptQ revenue guidance of $465-480m and CY09 guidance of +1-3% y/y growth were reiterated; moderate dilution of 100bps in both SeptQ and DecQ is expected due to cost of 150 SpringSource employees, though opmgn guidance of 20-22% for SeptQ and 20-23% for CY09 was reiterated. We anticipate $0.01EPS dilution is possible in both SeptQ and DecQ. Strategic rationale. While the market is filled with development tools, we believe SpringSource s (with Hyperic) differentiator is its apparent cloud applicationdevelopment usage; this is in-line with CEO Maritz s vision of making VMW a major cloud-computing provider. 4 An Investment Analysis by Needham & Company, LLC

Risk statement. VMW Buyers of VMware shares face risks including but not limited to: challenge of a continued anemic IT spending environment, challenges of maintaining revenue growth in a relatively new category of IT spending, challenge of integrating recent acquisitions. CA Buyers of CA face risks including but not limited to: challenge of recent CEO change, challenge of recent acquisitions over past 12 months and their integration, challenge of a continued anemic spending environment. An Investment Analysis by Needham & Company, LLC 5

Income Statement: VMware, Inc. (VMW) FY 2009 FY 2010 FY 2011 F1Q F2Q F3Q F4Q F1Q F2Q F3Q F4Q F1Q F2Q F3Q F4Q FY08 Mar 09 Jun 09 Sep 09 Dec 09 (E) FY09 Mar 10 Jun 10 Sep 10 Dec 10 FY10 Mar 11 Jun 11 Sep 11 Dec 11 FY11 License 1,178.142 257.003 227.962 240.271 304.206 1,029.442 285.000 315.000 305.000 330.000 1,235.000 290.000 330.000 335.000 360.000 1,315.000 Services 702.885 213.307 227.713 249.480 303.995 994.495 305.000 320.000 330.000 345.000 1,300.000 345.000 360.000 370.000 385.000 1,460.000 TOTAL REVENUE $1,881.027 $470.310 $455.675 $489.751 $608.201 $2,023.937 $590.000 $635.000 $635.000 $675.000 $2,535.000 $635.000 $690.000 $705.000 $745.000 $2,775.000 Cost of License 24.110 6.619 7.150 7.270 9.753 30.792 8.000 8.000 8.000 9.500 33.500 8.000 8.500 9.000 9.000 34.500 Margin 97% 97% 97% 97% 97% 97% 97% 97% 97% 97% 97% 98% Cost of Services 202.240 51.168 49.810 54.515 62.227 217.720 65.000 67.000 68.000 68.000 268.000 72.000 73.000 75.000 77.000 297.000 Margin 76% 78% 78% 80% 79% 79% 79% 80% 79% 80% 80% 80% Total Cost of Revenue 226.350 57.787 56.960 61.785 71.980 248.512 73.000 75.000 76.000 77.500 301.500 80.000 81.500 84.000 86.000 331.500 Cost of Sales as % of Revenue 12% 12% 13% 13% 12% 12% 12% 12% 12% 11% 12% 13% 12% 12% 12% 12% Gross Profit 1,654.677 412.523 398.715 427.966 536.221 1,775.425 517.000 560.000 559.000 597.500 2,233.500 555.000 608.500 621.000 659.000 2,443.500 GROSS MGN 88.0% 87.7% 87.5% 87.4% 88.2% 87.7% 87.6% 88.2% 88.0% 88.5% 88.1% 87.4% 88.2% 88.1% 88.5% 88.1% OPEX R & D 432.722 111.237 109.281 107.611 113.473 441.602 122.000 130.000 132.000 140.000 524.000 130.000 135.000 138.000 145.000 548.000 S & M 599.478 139.842 153.581 168.888 213.221 675.532 195.000 210.000 210.000 220.000 835.000 205.000 220.000 225.000 235.000 885.000 G & A 153.835 40.450 39.505 42.701 51.911 174.567 50.000 55.000 58.000 62.000 225.000 57.000 60.000 60.000 62.000 239.000 Other (e.g., stock compensation) 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 Total OPEX 1,186.035 291.529 302.367 319.200 378.605 1,291.701 367.000 395.000 400.000 422.000 1,584.000 392.000 415.000 423.000 442.000 1,672.000 Loss/Profit From Operations 468.642 120.994 96.348 108.766 157.616 483.724 150.000 165.000 159.000 175.500 649.500 163.000 193.500 198.000 217.000 771.500 OPERATING MGN 24.9% 25.7% 21.1% 22.2% 25.9% 23.9% 25.4% 26.0% 25.0% 26.0% 25.6% 25.7% 28.0% 28.1% 29.1% 27.8% Other Income & Interest expense 6.760 (1.436) 0.872 2.779 (3.920) (1.705) 1.500 1.500 2.000 2.000 7.000 2.000 2.000 2.000 2.000 8.000 Pretax Income 475.402 119.558 97.220 111.545 153.696 482.019 151.500 166.500 161.000 177.500 656.500 165.000 195.500 200.000 219.000 779.500 Taxes 59.816 19.869 17.659 16.396 27.065 80.989 33.330 36.630 35.420 39.050 144.430 36.300 43.010 44.000 48.180 171.490 Tax Rate 13% 17% 18% 15% 18% 17% 22% 22% 22% 22% 22% 22% 22% 22% 22% 22% Net Income 415.586 99.689 79.561 95.149 126.631 401.030 118.170 129.870 125.580 138.450 512.070 128.700 152.490 156.000 170.820 608.010 Diluted Shares Outstanding 395.252 391.111 395.826 402.888 410.973 400.200 415.000 417.000 418.000 419.000 417.250 420.000 421.000 422.000 422.000 421.250 Pro Forma EPS $1.05 $0.25 $0.20 $0.24 $0.31 $1.00 $0.28 $0.31 $0.30 $0.33 $1.23 $0.31 $0.36 $0.37 $0.40 $1.44 Total License Y/Y 30% -13% -20% -16% -3% -13% 11% 38% 27% 8% 20% 2% 5% 10% 9% 6% Total License Q/Q NA -18% -11% 5% 27% NA -6% 11% -3% 8% NA -12% 14% 2% 7% NA Total Services Y/Y 67% 48% 32% 33% 52% 41% 43% 41% 32% 13% 31% 13% 13% 12% 12% 12% Total Services Q/Q NA 7% 7% 10% 22% NA 0% 5% 3% 5% NA 0% 4% 3% 4% NA Total Revenue Y/Y 42% 7% 0% 4% 18% 8% 25% 39% 30% 11% 25% 8% 9% 11% 10% 9% Total Revenue Q/Q NA -9% -3% 7% 24% NA -3% 8% 0% 6% NA -6% 9% 2% 6% NA EPS Y/Y 28% -5% 22% 18% R&D as % of revenue 23% 24% 24% 22% 19% 22% 21% 20% 21% 21% 21% 20% 20% 20% 19% 20% S&M as % of revenue 32% 30% 34% 34% 35% 33% 33% 33% 33% 33% 33% 32% 32% 32% 32% 32% G&A as % of revenue 8% 9% 9% 9% 9% 9% 8% 9% 9% 9% 9% 9% 9% 9% 8% 9% 6 An Investment Analysis by Needham & Company, LLC

Income Statement: CA (Ticker: CA) FY 2009 FY 2010 FY 2011 F1Q F2Q F3Q F4Q F1Q F2Q F3Q F4Q F1Q F2Q F3Q F4Q Jun 08 Sep 08 Dec 08 Mar 09 FY09 Jun 09 Sep 09 Dec 09 (A) Mar 10 (E) FY10 Jun 10 Sep 10 Dec 10 Mar 11 FY11 Subscription revenue 965.000 975.000 919.000 913.000 3,772.000 946.000 973.000 1,000.000 995.000 3,914.000 970.000 990.000 1,010.000 1,050.000 4,020.000 Maintenance 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 Software fees and other 29.000 38.000 36.000 38.000 141.000 33.000 28.000 54.000 45.000 160.000 48.000 51.000 55.000 58.000 212.000 Professional services 93.000 94.000 87.000 84.000 358.000 71.000 71.000 74.000 73.000 289.000 74.000 76.000 78.000 81.000 309.000 TOTAL REVENUE $1,087.000 $1,107.000 $1,042.000 $1,035.000 $4,271.000 $1,050.000 $1,072.000 $1,128.000 $1,113.000 $4,363.000 $1,092.000 $1,117.000 $1,143.000 $1,189.000 $4,541.000 Amortization of capitalized software 31.000 29.000 31.000 34.000 125.000 34.000 34.000 34.000 34.000 136.000 32.000 32.000 32.000 32.000 128.000 Cost of professional services 79.000 84.000 76.000 68.000 307.000 67.000 59.000 67.000 66.000 259.000 66.000 66.000 67.000 69.000 268.000 SG&A 419.000 421.000 417.000 421.000 1,678.000 391.000 406.000 445.000 450.000 1,692.000 405.000 415.000 445.000 470.000 1,735.000 Product development 123.000 120.000 115.000 128.000 486.000 119.000 115.000 119.000 125.000 478.000 120.000 122.000 125.000 130.000 497.000 Costs of licensing, maintenance 75.000 80.000 70.000 73.000 298.000 66.000 73.000 73.000 73.000 285.000 72.000 72.000 72.000 72.000 288.000 Depreciation and intangibles amortization 36.000 37.000 36.000 40.000 149.000 39.000 39.000 40.000 39.000 157.000 37.000 37.000 37.000 37.000 148.000 Interest expense 4.000 2.000 8.000 11.000 25.000 17.000 22.000 12.000 12.000 63.000 12.000 12.000 12.000 12.000 48.000 Other gains/expenses, net 16.000 6.000 (14.000) (5.000) 3.000 7.000 7.000 0.000 8.000 22.000 8.000 8.000 8.000 8.000 32.000 Shareholder litigation settlement 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 Total Cost of Revenue 783.000 779.000 739.000 770.000 3,071.000 740.000 755.000 790.000 807.000 3,092.000 752.000 764.000 798.000 830.000 3,144.000 Pro-Forma adjustments (36.000) (17.000) (29.000) (40.000) (122.000) (45.000) (40.000) (23.000) (34.000) (142.000) (34.000) (34.000) (34.000) (34.000) (136.000) Cost of Sales as % of Revenue 72% 70% 71% 74% 72% 70% 70% 70% 73% 71% 69% 68% 70% 70% 69% Gross Profit (Income from Continuing Op 340.000 345.000 332.000 305.000 1,322.000 355.000 357.000 361.000 340.000 1,413.000 374.000 387.000 379.000 393.000 1,533.000 OPERATING MGN 31.3% 31.2% 31.9% 29.5% 31.0% 33.8% 33.3% 32.0% 30.5% 32.4% 34.2% 34.6% 33.2% 33.1% 33.8% Pretax Income 340.000 345.000 332.000 305.000 1,322.000 355.000 357.000 361.000 340.000 1,413.000 374.000 387.000 379.000 393.000 1,533.000 Taxes 126.000 126.000 99.000 136.000 487.000 126.000 127.000 129.000 122.400 504.400 134.640 139.320 132.650 137.550 544.160 Tax Rate 37% 37% 30% 45% 37% 35% 36% 36% 36% 36% 36% 36% 35% 35% 35% Net Income (continuing operations) 214.000 219.000 233.000 169.000 835.000 229.000 230.000 232.000 217.600 908.600 239.360 247.680 246.350 255.450 988.840 Diluted Shares Outstanding 537.000 539.000 539.000 541.000 539.000 540.000 542.000 535.000 533.000 537.500 533.000 535.000 535.000 536.000 534.750 EPS $0.40 $0.41 $0.43 $0.31 $1.55 $0.42 $0.42 $0.43 $0.41 $1.69 $0.45 $0.46 $0.46 $0.48 $1.85 Total Subscription Y/Y 16% 14% 3% -4% 7% -2% 0% 9% 9% 4% 3% 2% 1% 6% 3% Total Subscription Q/Q 1% 1% -6% -1% NA 4% 3% 3% -1% NA -3% 2% 2% 4% NA Total Revenue Y/Y 6% 4% -5% -5% 0% -3% -3% 8% 8% 2% 4% 4% 1% 7% 4% Total Revenue Q/Q 0% 2% -6% -1% NA 1% 2% 5% -1% NA -2% 2% 2% 4% NA EPS Y/Y 31% 9% 9% SG&A as % of revenue 39% 38% 40% 41% 39% 37% 38% 39% 40% 39% 37% 37% 39% 40% 38% Prod dev./ R&D as % of revenue 11% 11% 11% 12% 11% 11% 11% 11% 11% 11% 11% 11% 11% 11% 11% Prof. Svcs as % of Prof. Svcs Rev. 85% 89% 87% 81% 86% 94% 83% 91% 90% 90% 89% 87% 86% 85% 87% CY09 revenue $4,285.00 CY10 revenue $4,465.00 EPS 1.59 EPS 1.78 An Investment Analysis by Needham & Company, LLC 7

ANALYST CERTIFICATION I, Scott Zeller, hereby certify that the views expressed in this research report accurately reflect my personal views about the subject company (ies) and its (their) securities. I also certify that I have not been, am not, and will not be receiving direct or indirect compensation in exchange for expressing the specific recommendation(s) in this report. Disclosures applicable to ArcSight, Inc. (ARST/NASDAQ): B, G. Disclosures applicable to Cogent, Inc. (COGT/NASDAQ): B, G. Disclosures applicable to Blue Coat Systems Inc. (BCSI/NASDAQ): B, G. Disclosures applicable to CA, Inc. (CA/NYSE): B, G. Disclosures applicable to Citrix Systems, Inc. (CTXS/NASDAQ): B, G. Disclosures applicable to Netscout Systems Inc. (NTCT/NASDAQ): B, G, J1. Disclosures applicable to Openwave Systems Inc. (OPWV/NASDAQ): B, G. Disclosures applicable to Riverbed Technology (RVBD/NASDAQ): B, G, J1. Disclosures applicable to SonicWall Inc. (SNWL/NASDAQ): B, G. Disclosures applicable to Sybase, Inc. (SY/NYSE): B. Disclosures applicable to Vasco Data Security Int'l Inc. (VDSI/NASDAQ): B, G. Disclosures applicable to VMware Inc. (VMW/NYSE): B. Disclosures applicable to Checkpoint Software Technologies Ltd. (CHKP/NASDAQ): B, G. Disclosures applicable to SolarWinds Inc. (SWI/NYSE): B. Disclosures applicable to EMC Corporation (EMC/NYSE): A, B, D, J. 8 An Investment Analysis by Needham & Company, LLC

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