VMware's fourth-quarter earnings, reported Jan. 28, set a record and came in ahead of analyst expectations. The next day, its stock, which had been trading at $99.10 just before the announcement, took a stunning hit, losing 20% of its value within a short time after the opening of trading.

Several analysts had predicted VMware's fourth-quarter earnings would disappoint because the market for virtualization products was nearly saturated and Microsoft was moving in to steal the customer base.

Instead, VMware beat the previous fourth-quarter's earnings per share by 2% -- at $0.47 per share. But the news that it was laying off 900 and realigning resources was taken as a bad sign. Maybe the skeptics had been right about VMware's diminishing future. Or perhaps lost in translation was the statement that VMware would hire an additional 1,000 people and focus on its top business priorities.

[ Want to know more about how VMware described its "realignment" during its fourth-quarter earnings call Jan. 28? See VMware Earnings, Examined. ]

Seven investment firms lowered their ratings on VMware the day after the report, including Goldman Sachs, Sterne Agee and Morgan Stanley. Piper Jaffray analyst Mark Murphy said he reduced VMware's rating to "neutral" because "a large mix of investors assumed that license revenue growth would accelerate from 13% in 2012 to a high teens rate in 2013." The next day, VMware shares dropped further to $76.80, off 22% from its pre-earnings report high.

VMware has led a somewhat charmed life with investors up to this point. It's been presumed to be the leader of a business with a lot of potential growth. Instead, VMware came up with a conservative forecast of new license sales, a key indicator of its prospects, of 8-11% for the first quarter of 2013, as well as slower overall sales in the first half.

On the third day, its stock began to recover. VMware closed Friday at $78.79, up $2.31, or 3%, but still far below $99.10. Some investors clearly thought that VMware, under a new CEO and having just lost its CTO, was laying off employees as foretaste of things to come. Perhaps that lower-than-expected first-quarter 2013 meant the days of VMware picking virtualization's low-hanging fruit were over.

Is this the true state of the company? Was VMware's value, pre-fourth quarter earnings report, overly optimistic or was it real?

One VMware stockholder took its dip in value as an opportunity to buy more. That was parent company, EMC. In an 8K report filed with the SEC Jan. 31, three days after the quarterly earnings call, EMC indicated it had purchased nearly $5 million in VMware stock Jan. 29 and another $15 million Jan. 30. This isn't exactly the kind of endorsement a company in VMware's straits is looking for. The move had the effect of giving EMC a larger share of VMware (it already held 78% to 80%), and it was likely to have been motivated by a desire to prop up the stock.

At the same time, the VMware's adoption of the "we're part of the post-PC era of computing" slogan and its acquisition of application companies always seemed to me born of an unhealthy desire to compete on Microsoft's turf. Yes, there's a new era of mobile applications, and they largely circumvent Microsoft and its Office franchise. At the same time, no one has displaced Office -- and those who have tried have failed miserably. Why did a server infrastructure company like VMware think it was going to be the one to succeed in end-user apps?

VMware's 8-K filing with the SEC Jan. 29 said it "planned exit of certain lines of business and consolidation of facilities" by the end of 2013. The only one mentioned during the earnings call was SlideRocket, the online presentations application.

While VMware waited for Microsoft to weaken in applications, it got stronger in data center virtualization, with its System Center and Virtual Machine Manager, and the growing presence of Windows Server 2012. VMware's fourth-quarter announcement recognized this reality and vowed to swing more resources out of the skirmish line and into the main battle.