VMware revenue falls short, shares off 26.5 percent

By Jim Finkle

BOSTON (Reuters) - Business software maker VMware Inc (VMW.N) reported quarterly revenues that fell short of Wall Street expectations and forecast a slowdown in revenue growth on Monday, sending shares down more than 26 percent.

In addition to the revenue miss for the fourth quarter, VMware forecast 2008 revenue growth of 50 percent, versus 88 percent in 2007. That would suggest revenue of $2 billion, just shy of Wall Street targets.

VMware is partial spin-off of computer storage maker EMC Corp (EMC.N) , whose shares fell 11.5 percent.

VMware shares had more than quadrupled in value since an August initial public offering on high expectations for its virtualization software for managing computer networks, but the stock has dropped since November.

"If you miss your numbers in just your second quarter after going public that suggests the stock was overhyped," said Trip Chowdhry, an analyst at Global Equities Research.

"The story is not as perfect as investors believe. Oracle and Microsoft and Citrix (CTXS.O) have spoiled VMware's party. Not only that, VMware execution has been flawed.

"Instead of being a category, it will be relegated to being a product," Chowdhry said.

VMware said net profit in the fourth quarter was $78 million, or 19 cents per share, compared to $31 million, or 9 cents per share, a year earlier.

Revenue rose 80 percent to $412 million, but missed Wall Street's average target of $417 million, according to Reuters Estimates.

Katherine Egbert of Jefferies & Co said that at first glance it appeared VMware may not have recognized some revenue.

VMware makes technology that allows a single computer to act like many "virtual" machines and run multiple operating systems and programs. It is the leading company in the virtualization market, but faces increasing competition from the likes of Oracle Corp (ORCL.O) and Microsoft Corp (MSFT.O).

VMware debuted at $29 a share in August 2007 and reached a high of $125.25 in October.

Shares fell to $61.00 in extended trading on Monday from a close of $83 on the New York Stock Exchange.

The stock of VMware's parent EMC fell to $14.97 from a New York Stock Exchange close of $16.91.

(Reporting by Jim Finkle; Editing by Tim Dobbyn, Leslie Gevirtz)