VMware shares suffer huge drop
Posted
Jul 08 2008, 11:47 AM
by
Kim Peterson
Rating:
Shares of VMware plummeted 26% in morning trading after the company said its revenue for the year would be less than expected. The company also booted its president and CEO, Diane Greene, and moved former Microsoft exec Paul Maritz into the spot.
It's been a rough ride for VMware, who was the belle of the stock market ball last year. Its shares cleared $110 last October, but since then they've been on a remarkable slide and and have dipped under $40 today. I don't think the news was bad enough to warrant that kind of drop. The company said revenue would dip "modestly" below its guidance of 50% year-over-year growth. And even if revenue comes in at, say, 40% above the prior year, that's a heck of an achievement. Sales for fiscal 2007 were $1.33 billion.
What happened to VMware? For one thing, Microsoft moved in on its market, selling server virtualization software that allows one computer to act as multiple machines. That's VMWare's specialty, and having Microsoft show up as a competitor is a scary prospect, particularly since Microsoft was undercutting VMware on price.
The stock might also have dropped because a large number of employee options have recently started to vest.
The good news about VMware's drop? It's P/E is finally a little more down to earth, in the mid-60s range. Last year the company's P/E ratio was well over 200, and investors who rejected the stock as too pricey made a smart move.
Disclosures: I don't own shares of any companies mentioned in this
post. And while Microsoft owns this blog, Microsoft does not control,
censor or otherwise have any editorial influence over what I write.
Related reading:
Clouds darken at VMWare
VMWare and EMC: Partners in decline
Four reasons for VMWare not to fear Microsoft
