VMware disappoints, gets hammered

STOCK market darling VMware has taken a share price beating after announcing disappointing fourth quarter results, prompting investors to flee in the face of competition from Microsoft and others.

The stock lost more than 30 per cent of its value, wiping US$11 billion ($12.3 billion) off shareholder value.

VMware, a virtualisation specialist, listed last year in the biggest IPO since Google went public in 2004. VMware stock immediately soared.

The company has been a pioneer in the virtualisation market, growing revenues to more than US$1.3 billion in the past decade and helping corporate datacenters to drastically reduce power costs and hardware overheads in the process.

But reports in the US say investors have been spooked by less than stellar fourth quarter results amid fears that industry giants like Microsoft, Oracle and Citrix Systems have now turned an eye to virtualisation and will continue to squeeze VMware performance.

VMware reported fourth quarter revenue of US$412 million, an increase of 80 per cent over the year-ago quarter, but slightly below company forecasts.

What appears to have spooked the market is its forecasts. The company says it expects revenue to grow 50 per cent in 2008, somewhat lower than the consensus analyst view of growth between 55 per cent and 57 per cent.

VMware president and chief executive Diane Greene downplayed the more serious entry of others into virtualisation market, saying the company had a market lead and deeper channel relationships that any competitor.

“VMware executed at a remarkable pace in 2007 as customer interest and partner attention increased several fold,” Ms Greene said. “As others begin to enter the market, VMware and our partners are continuing to broaden and deepen our highly reliable end-to-end virtualisation solutions.

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Fiesty VMware attacks Microsoft virtualisation

VIRTUALISATION specialist VMware has accused Microsoft of trying to restrict customers’ flexibility and freedom to choose virtualisation software by limiting who can run their software and how they can run it.

VMware also charged that Microsoft is unfairly leveraging its ownership of market-leading operating systems and applications to force customers to use Microsoft virtualisation products.

In a white paper published on the VMware web site, the company accused Microsoft was using unreasonable software licensing and distribution terms – for Microsoft SQL Server, Exchange, Windows Server and Vista – and restrictive APIs and formats for virtualised Windows to corral customers into using Microsoft virtualisation products.

“In particular, Microsoft does not have key virtual infrastructure capabilities – like (VMware’s) VMotion – and they are making those either illegal or expensive for customers,” the White Paper charges.

“Microsoft doesn't have virtual desktop offerings, so they are denying it to customers, and Microsoft is moving to control this new layer that sits on the hardware by forcing their specifications and APIs on the industry.”

VMware said Microsoft was not acting in the best interests of its customers by attempting to force an integrated virtual hardware/OS/application stack on them.

“Customers require an “any to any” interoperability model where Microsoft application stacks can run freely with licensing, open APIs, and support equivalence on non-Microsoft virtual hardware to Microsoft’s own virtualization technologies,” the paper said.

The paper outlines seven specific examples of Microsoft’s unacceptable market behavior.

“Microsoft needs to fundamentally accommodate market choice and interoperability,” the paper concludes.

“Customers require freedom of choice to implement both Microsoft and non-Microsoft applications running on Windows with any chosen system virtualization layer. Customers do not benefit from being forced into a homogenous virtualization/OS/application stack.”

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