January 29, 2008 / 1:33 AM / 12 years ago

VMware revenue falls short, shares tumble 26 percent

BOSTON (Reuters) - Business software maker VMware Inc (VMW.N) 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) 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, which fell 11 percent.

EMC, a maker of data storage equipment, sold a minority stake in VMware to the public in August in what was the hottest tech stock offering in years.

VMware shares shot up initially on high expectations for its virtualization software for managing computer networks.

The software allows a single computer to act like many “virtual” machines, simultaneously running multiple operating systems and programs. VMware 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’s stock fell to $60.99 in extended trading on Monday from a $83 close on the New York Stock Exchange. It debuted at $29 in August 2007 and reached a high of $125.25 in October.

“Either the business decelerates very rapidly over the next couple of quarters or over the course of the year,” Tom Curlin of RBC Capital Markets said during a conference call with management in which he and others asked for explanation of the 2008 forecasts.

“You’re just going to have to take your own approaches as to how you look at our guidance,” Chief Financial Officer Mark Peek responded.

EMC fell to $14.99 from a New York Stock Exchange close of $16.91.

Additional reporting by Daisuke Wakabayashi; Editing by Leslie Gevirtz and Braden Reddall

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