VMware Shares Drop Below IPO Price

What a difference a year makes. The VMworld 2007 show generated excitement about the future of virtualization, prompting investors to bid up the price of the newly-public VMware (VMW). By November 2007, the company’s stock was trading at $124 a share.

Today marked the first day that VMware shares have fallen below their IPO price of $29. This afternoon VMW is down $5.00 at $26.98 a share, a one-day drop of 16 percent. It’s clearly not alone, as the current turmoil on Wall Street is battering many companies. It’s a sobering reminder that the technologies showcased at VMworld 2008 will be marketed and deployed in a tough market in which long-held assumptions can change overnight.

Cisco Unveils Virtual Switch for VMware

Cisco Systems today announced its long-expected virtual software switch, the Nexus 1000V, which will become an integrated option in the VMware Infrastructure virtualization environment. The two companies made the announcement in a keynote at the VMworld 2008 show, where they also unveiled collaborations to help enterprises virtualize their desktops and train resellers in data center virtualization strategies.

The announcement is  the latest step in Cisco’s Data Center 3.0 initiative, and aligns with VMware’s vision for virtual machines to become the building blocks for the next-generation data center. It also deepens the partnership between VMware (VMW) and Cisco (CSCO) , providing each with a powerful ally in their respective ambitions in the data center.

The Nexus 1000V will extend Cisco’s security, policy enforcement, automated provisioning and diagnostics features into VMware environments that can scale to thousands of virtual machines (VMs). The new Cisco Virtual Network Link (VN-Link) technology on the Nexus 1000V will integrate with VMware’s vNetwork Distributed Switch framework to create a logical network infrastructure.

Rosenblum Leaves VMware

Mendel Rosenblum, the co-founder of VMware, has resigned his post as Chief Scientist and left the company.

The departure of Rosenblum is not a surprise, coming just two months after the board fired his wife and co-founder Diane Greene as CEO. Rosenblum’s exit comes at an awkward time, becoming public just ahead of next week’s VMworld trade show in Las Vegas, where a record crowd of 14,000 attendees is expected. Rosenblum’s resignation was reported in a New York Times story about the ongoing fallout from Greene’s firing, which also noted that VMware recently lost another key executive, Executve Vice President of R&D Richard Sarwal.

The Times story also includes an account of Greene’s July 7 firing:

After Ms. Greene made a special presentation to VMware’s board, (Joseph) Tucci, who heads VMware’s parent company, EMC, pulled her aside, according to people familiar with the events, who asked for anonymity because they were not authorized to discuss internal company decisions. Inviting Mendel Rosenblum, Ms. Greene’s husband and the co-founder of VMware, into the room, Mr. Tucci told Ms. Greene she was fired, effective immediately. And he said the board wanted Mr. Rosenblum, VMware’s chief scientist, to take her seat on the board. Mr. Rosenblum declined the offer.

Here’s a quiz for married guys: If someone fires your wife and then immediately turns and offers you her position, what do you do? How did Tucci expect Rosenblum to respond?

His final answer came last night. It will be interesting to see whether Rosenblum’s departure is already built into VMware’s stock price.

Traders Betting on EMC Spinoff of VMware

Is EMC ready to spin off VMware? These rumors have been around before, and got a lot of attention following the surprise exit of VMware CEO Diane Greene. The New York Times called Greene’s dismissal a “dramatic gesture” by EMC to silence talks off a spinoff.

If so, it didn’t work. Wall Street watchers are again focused on VMware spinoff rumors after an unusual surge in purchases of call options in EMC stock, according to the Wall Street Journal. Call options are a bet that shares will rise in value. On Wednesday traders bought more than 350,000 EMC calls, outnumbering bearish “puts” more than three to one. “Somebody is taking a huge bet that these shares are about to rally,” Joe Kinahan, chief derivatives strategist with Thinkorswim, told the Journal.

VMware Plans Major Data Center in Wenatchee

VMware has become the latest tech titan to locate a major data center in central Washington. The virtualization market leader will lease more than 100,000 square feet of space in a new facility being built by Sabey Corp. in its Intergate.Columbia development in East Wenatchee, Wash.

The huge lease is another big win for Sabey, which has already leased the entire first building at Intergate.Columbia to T-Mobile. The VMware deal means that Sabey has pre-leased the vast majority of space at Intergate.Columbia. The VMware lease, which was reported today by the Wenatchee World, will take up about two-thirds of the 189,000 square foot second building.

VMware joins a growing list of companies that are building or leasing data center space in central Washington, where cheap hydro power from the dams along the Columbia River has proven to be a magnet for massive data center projects. Microsoft, Yahoo, Intuit, Ask.com and Base Partners already have data center projects in the area.

VMware Bombshell: The Day After

What’s the real story behind the ouster of VMware CEO Diane Greene? The analysis from VMware watchers is focusing on two issues: whether VMware should be spun off or sold, and tensions between Greene and EMC chairman Joe Tucci. Here’s a roundup:

• Greene’s exit is a “dramatic gesture” by EMC to silence talks off a spinoff, according to the New York Times.
• Was a spinoff of VMware ever in the cards? Speculation of a spinoff boosted EMC’s shares in May, and prompted at least one analyst to raise his rating on EMC. Most of the chatter has focused on Intel and Cisco, which each bought stakes in VMware prior to its IPO.
• The Register focuses on the rumored tensions between Greene and Tucci. “It’s nothing less than shocking that Tucci would push to remove Greene just as VMware needed her most,” writes Ashlee Vance. “Here comes Microsoft with Hyper-V finally ready, and you’re going to rattle the whole ship because of a personality conflict?”

VMware Surprise: Greene Out as CEO

Virtualization market leader VMware (VMW) announced that President and CEO Diane Greene has departed and been replaced by Paul Maritz, a Microsoft veteran who has most recently been in charge of the cloud computing operation at EMC, VMware’s parent company.

VMware’s release also said that “revenues for the full year of 2008 will be modestly below” the 50 percent growth seen in 2007. The switch comes as Microsoft is finally bringing its Hyper-V virtualization technology to market, posing the largest competitive threat yet to VMware’s leadership in the sector.

Greene co-founded VMware with her husband, Mendel Rosenblum, who serves as chief scientist and is a prominent advocate for the company’s technology. VMware watcher Alessandro Perilli of Virtualization.info noted that Greene had been a popular CEO. “This replacement, if imposed by the parent company EMC, may have a huge domino effect on the whole VMware management team,” Perilli writes.

Shares of VMware are off sharply on the news. In early afternoon, VMW is trading at $39, down $14.36 for a decline of 27 percent.

VMware Shares Plunge 33 Percent

Shares of virtualization market leader VMware (VMW) are off $27.75 to $55.25 as of mid-afternoon, a drop of 33.5 percent. The plunge began in after-hours trading yesterday after VMware lowered its revenue guidance for 2008 and reported fourth-quarter revenue that fell $5 million shy of expectations. That disappointment, coming in the wake of the surge in valuation of VMware shares since its IPO last August, set the stage for a huge selloff.

Eric Savitz at Tech Trader Daily rounds up the reaction from Wall Street analysts that follow VMware. He leads off with John DiFucci of Bear Stearns, who cut his price target for VMware from $132 to $106 - still nearly twice the current price of the stock. For more perspective, see the transcript of yesterday’s analyst conference call by VMware executives.

VMware Windfall for Cisco, Intel Hits $1B

VMWare shares gained another $3.62 per share today to $88.62. Among the happy shareholders are Intel (INTC) and Cisco (CSCO), who will reap one-day paper gains of $34.4 million and $22.6 million, respectively. Not bad for a day’s ticker watching. The two tech titans have made out well on their pre-IPO investments in VMWare, as noted recently by the Deal Journal blog. There are compelling strategic rationales for the investments in VMWare (VMW), the virtualization market leader. But the bottom line has turned out nicely as well.

Shares of VMWare have gained tripled since the EMC unit went public at $29 a share on Aug. 14. Intel paid $23 a share for its 9.5 million stake in VMWare, which translates into a gain of $623 million since the IPO. Cisco invested $150 million and is now ahead $410 million on its VMWare shares. That’s a combined $1.03 billion in paper profits between them.

VMware Acquires Dunes Technologies

VMware spiced up its VMWorld 2007 conference with some news of its own, saying it has acquired Dunes Technologies, a company that provides IT process orchestration software for virtual environments. Terms of the deal were not disclosed. Orchestration - the intelligent monitoring and management of complex virtualized environments - has gotten more attention recently after featuring prominently in Cisco’s announcement of its Data Center 3.0 strategy. In announcing the deal, VMware’s Raghu Raghuram cited the importance of orchestration as virtualization becomes more widely implemented.

“As customers move toward large-scale virtual infrastructure deployments, they need solutions that allow them to maintain control over a growing number of virtual machines,” said Raghuram, vice president of products and solutions at VMware. “Dunes has developed a powerful orchestration platform that will allow us to automate the entire virtual machine lifecycle from requisition to de-commissioning, while complementing existing VMware management and automation solutions such as VMware Lab Manager and the recently announced VMware Virtual Desktop Manager.”