VMware Vs. Microsoft: The Next Chapter
Microsoft has already stolen some VMware customers and there will be more to come. But some watchers missed the early success of software-defined data center buried in VMware's Q4 numbers.
VMware's fourth-quarter earnings, reported Jan. 28, set a record and came in ahead of analyst expectations. The next day, its stock, which had been trading at $99.10 just before the announcement, took a stunning hit, losing 20% of its value within a short time after the opening of trading.
Several analysts had predicted VMware's fourth-quarter earnings would disappoint because the market for virtualization products was nearly saturated and Microsoft was moving in to steal the customer base.
Instead, VMware beat the previous fourth-quarter's earnings per share by 2% -- at $0.47 per share. But the news that it was laying off 900 and realigning resources was taken as a bad sign. Maybe the skeptics had been right about VMware's diminishing future. Or perhaps lost in translation was the statement that VMware would hire an additional 1,000 people and focus on its top business priorities.
Seven investment firms lowered their ratings on VMware the day after the report, including Goldman Sachs, Sterne Agee and Morgan Stanley. Piper Jaffray analyst Mark Murphy said he reduced VMware's rating to "neutral" because "a large mix of investors assumed that license revenue growth would accelerate from 13% in 2012 to a high teens rate in 2013." The next day, VMware shares dropped further to $76.80, off 22% from its pre-earnings report high.
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