VMware revenue falls short, shares tumble 26 percent

By Jim Finkle

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

Analysts saw the report as a sign that the company will lose business to competitors crowding into VMware's key market for virtualization software to manage large computer networks.

VMware shares had quadrupled in value after an August initial public offering, but have dropped since November.

The company on Monday forecast revenue growth of 50 percent in 2008, versus 88 percent in 2007. That would suggest revenue of $2 billion, shy of Wall Street targets.

"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: Quote, Profile, Research, Stock Buzz) have spoiled VMware's party," he added. "Not only that, VMware execution has been flawed."

VMware said fourth-quarter net profit rose to $78 million, or 19 cents per share, from $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.

The drop in VMware's stock price erased nearly $9 billion in market capitalization. The forecast also hit shares of EMC Corp (EMC.N: Quote, Profile, Research, Stock Buzz), which fell 11 percent.