Microsoft is allegedly to acquire Silicon Valley startup Calista Technologies Inc. which specializes in virtualization technology, among other aggressive steps to take on VMWare, the leader in virtual machines. In December, Microsoft announced the public beta of Hyper-V, its hypervisor-based server virtualization technology.

The virtualization software concept refers to software allowing companies to run more than one operating system on their individual computers. That will mean boosting the companies’ productivity, but without increasing the overhead costs.

"Although virtualization has been around for more than four decades, the software industry is just beginning to understand the full implications of this important technology," wrote Bob Muglia, senior vice president of Microsoft's server and tools division, in an e-mail.

Calista is now apparently a wholly owned subsidiary of Microsoft, but the terms of the deal were kept confidential.

Aside from the acquisition of Calista, several press reports claim that Microsoft is also to announce a closer relationship with Citrix Systems Inc., another power player in the virtualization field.

"It’s early–incredibly less than 5 percent of servers are virtualized, and even less on the desktop," said Larry Orecklin, general manager of System Center marketing at Microsoft.

Hyper-V will be a feature of Windows Server 2008 and Microsoft said the final version remains on target for release within 180 days of the RTM of Windows Server 2008.

Hyper-V is designed to provide a broad range of customers with familiar and cost-effective virtualization infrastructure software that can help reduce operating costs, increase hardware utilization, optimize infrastructure and improve server availability, Microsoft claims.

Hyper-V will compete directly with the virtualization applications delivered by VMware. However, VMware is a tough adversary for anybody to take on. VMware, Inc., founded in 1998, purchased a company called Thinstall on Jan. 15 to add technology which lets companies run applications such as Word and Excel on individual machines without having to install them. The company also boasts a boasts a market capitalization of more than $31 billion.