VMware Shares Plunge On Wall Street Jitters

Investors' nerves were rattled when the company predicted that revenue growth this year would slow.

Antone Gonsalves, Contributor

January 29, 2008

1 Min Read

VMware, among the hottest tech companies last year, saw its stock price plummet Tuesday as investors shed shares over concerns that the virtualization company's heyday maybe over in an increasingly competitive market.

In late afternoon trading on the New York Stock Exchange, VMware shares had plunged more than 32% to about $56. The freefall on Tuesday followed a 26% drop on Monday, when shares closed at $83.

Investors' nerves were rattled on Monday when the company, which is owned by storage vendor EMC, predicted that revenue growth this year would slow to a rate of 50%, which was below Wall Street expectations. The company ended last year with a revenue increase of 88% over 2006.

What concerned analysts was the company reporting a slowdown so soon after its initial public offering in August. EMC sold about 13% of VMware stock, which started with a price of $29, and ended its first day of trading at $51. The stock has traded as high as $125.25.

Investment bank Caris on Tuesday downgraded VMware stock and slashed its price target to $60 from $135, TheStreet.com reported. Caris interpreted VMware's guidance as an indication that software license growth would slow to 30% to 40% by the fourth quarter of 2008. License revenue in the last quarter of 2007 was up 70%.

VMware is facing tougher competition in the virtualization software market. Microsoft is among the major vendors investing heavily in the market.

VMware's growth is now fueled by acquisition as well as new customers. In September it acquired Dunes Technologies, a virtual machine management software supplier, and this month it bought Thinstall, an application virtualization software supplier.

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