Prospects for VMWare's Stock are Still Weak Following Recent Tumble

7/8 - "Greene's replacement is former Microsoft (Nasdaq: MSFT) bigwig and Intel (Nasdaq: INTC) executive Paul Maritz...Maritz was responsible for some of Microsoft's most successful products, such as Windows 95, Windows NT, and the entire Office line in the late 1990s. He was part of the five-person brain trust that effectively ran Redmond...After a short adjustment period, I believe that the company will get right back on the hypergrowth track again, ready to take on Maritz's former employer throwing its best stuff VMware's way."

"There are murky waters ahead, and a P/E ratio of about 67 times trailing earnings after the 25% haircut is still not cheap. But you'll rarely find Rule Breakers in the bargain bin, and this one has a firm hold on one of the hottest markets in the tech biz right now."

7/9 - "Several analysts this morning actually asserted that replacing Greene with former Microsoft exec Paul Maritz should be considered a positive development for the company. “It was not a completely unexpected move,” writes Citigroup’s Brent Thill. “We believe Greene did an admirable job taking the company from zero to over $1.3 billion in 2007 revenue, but a different leader seems needed for the next leg in VMW’s story.”

"All across the Street, analysts slashed estimates on the company. Lehman’s Israel Hernandez, for instance, dropped his target on the stock to $41, from $75, and gave four reasons for caution on the stock, even at the newly reduced share price: Guidance may be too high given macro weakness; building competitive pressures; additional senior management changes; the impact on employee morale from founder Greene’s departure."

"Citi’s Thill, who maintains a Buy rating on the stock, nonetheless cut his target to $52 from $80, and noted that the reduced guidance for 2008 reflects “macro issues which are elongating sales cycles and causing customers to break deals into smaller pieces.”

"Another key takeaway from the management change is that it appears to make it less likely that EMC Corp. (EMC) will spin off its 86% stake in the company; that no doubt will be disappointing to some EMC holders, who see a spin-off as a way to increase shareholder value. On the other hand, RBC Capital’s Thomas Curlin contends that the issue is not whether EMC wants to spin out its VMW stake, but rather “what they will be forced to do by shareholders” if EMC shares continue to trade in the mid-to-low teens."

7/9 - "In our opinion CEO Diane Greene parted ways as the VMW Board (dominated by EMC Management) decided not to spin out VMW for now. We do not believe that the departure of Ms. Greene has anything to do with reduction in full year revenue guidance...New CEO Paul Maritz is an outsider and we feel is unlikely to command the loyalty of the existing core VMW team which would be somewhat negative for VMW."

"We believe VMW’s competitive position remains very strong and the reduction in full year guidance has no relevance with any increase in expected competition from Microsoft’s Hyper-V."

"We believe that the reduction in full year revenue guidance from 50% to lessthan- 50% is probably because of (a) current macro conditions and (b) lack of ability to precisely estimate the growth rate of a rapidly growing entity. A mix shift to ELAs (enterprise license agreement) is also putting downward pressure on near-term license revenues, the impact of which may not have been anticipated earlier. In our opinion, the real battle in server virtualization is in automation and management where we do not anticipate Microsoft (MSFT: Nasdaq; Neutral) to gain any traction anytime soon."

"We would argue that spinning out VMW as a separate entity would maximize shareholder wealth for both EMC (EMC: NYSE; Buy) and VMW, although EMC management tends to disagree at this time. We are maintaining our Buy rating, keeping a longer-term view, although we do no foresee any near-term catalyst for the VMW stock."