Update: VMWare replaces CEO, shares tumble

Virtualisation giant VMware has replaced its CEO and cofounder, Diane Greene, with a former Microsoft executive, Paul Maritz, and warned that its revenue for the year will be slightly lower than its previous estimate.

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Virtualisation giant VMware has replaced its CEO and cofounder, Diane Greene, with a former Microsoft executive, Paul Maritz, and warned that its revenue for the year will be slightly lower than its previous estimate.

The news caused VMware's shares to plummet 24 percent in Tuesday's trading on the New York Stock Exchange, to close at US$40.19.

VMware didn't say why Greene was being replaced, although the wording in its statement suggested that the decision was the board's and not her own. Nor did it explicitly link her departure to the company's financial update -- that its year-on-year revenue growth for 2008 will be "modestly below" its previous estimate of 50 percent.

Maritz was president of the Cloud Division at EMC, VMware's parent company. At Microsoft he managed marketing and development for products such as Windows 95 and Windows NT. In 2003 he formed Pi Corp., a maker of cloud-based personal information management software, which was acquired by EMC earlier this year.

The executive change comes as VMware faces increased competition from Microsoft, which launched its Hyper-V virtualisation software last month, and from Citrix Systems' XenServer software.

Greene's departure probably stems from the need for VMware to adjust its strategy and corporate culture in the face of this increased competition, said Jay Litkey, the founder and CEO of Embotics, a VMware partner that provides software for managing virtual environments.

VMware needs to find more software and channel partners to support its growth, and it must also change its culture from one focused primarily on technology to one that puts greater emphasis on sales and marketing, Litkey said. These are all things that a former Microsoft executive should be good at, he said.

"Everybody knows that Microsoft doesn't always win by having the best technology, but they are a darned good marketing company," Litkey said.

Thomas Bittman, a vice president with Gartner, said Greene did a great job building VMware, a startup with good technology and very little competition, into the market leader it is today. "Now they have some serious competition, it's going to be a very different market," he said.

But Bittman criticised VMware for the way it announced Greene's departure alongside the lowered sales forecast, implying she was the primary cause. "I think that's just an excuse," he said.

VMware's growth has been impressive and investors simply expect too much of the company, he said. "We all knew that competition was coming, and now the markets are reacting like it's a surprise," he said.

VMware reported fourth-quarter revenue growth of 80 percent in January, which disappointed shareholders and sent its stock tumbling 34 percent. Its results for the first quarter this year were stronger, but it appears likely to disappoint investors again with its second-quarter results on July 22. Maritz will discuss the second half of the year at that time, VMware said.

Bittman said customers shouldn't be concerned about VMware's future. The company has a foothold with 90 percent of the world's 1,000 biggest companies, he said. But Greene was a strong presence, and it remains to be seen what effect her departure will have. "Diane Greene is the personality of the company, and you've got to wonder what happens when Maritz comes in. Will they maintain what's good, and what will they change?" he asked.

Greene had a hands-on style that extended even to the types of free snacks given to employees at work, and she fostered an open, collaborative environment, Bittman said.

He agreed with Litkey that VMware needs to build more partnerships with software vendors. The company has had a "healthy paranoia" that viewed potential partners as competitors, he said. That served it well in the past, but perhaps not any more.

"Hundreds of smaller vendors have popped up to try to find a seam in this market," he said. "Rather than nurture that, VMware has held them back. You don't see a lot of VMware partners that are very big, but it would be more in their interest to promote a healthy ecosystem because that's what's going to help them compete."

Microsoft won't be a strong competitor in the enterprise market right away, Bittman said, because its technology is too new. The "major strategic decision" for VMware is whether to fight Microsoft for the small and midsize business market, he said.

To do that, VMware will need to lower its prices, Litkey and Bittman both said. "Clearly there's a very large gap between a VMware ESX license and a Microsoft Hyper-V license," Litkey said.
giant VMware has replaced its CEO and cofounder, Diane Greene, with a former Microsoft executive, Paul Maritz, and warned that its revenue for the year will be slightly lower than its previous estimate.

The news caused VMware's shares to plummet 24 percent in Tuesday's trading on the New York Stock Exchange, to close at US$40.19.

VMware didn't say why Greene was being replaced, although the wording in its statement suggested that the decision was the board's and not her own. Nor did it explicitly link her departure to the company's financial update -- that its year-on-year revenue growth for 2008 will be "modestly below" its previous estimate of 50 percent.

Maritz was president of the Cloud Division at EMC, VMware's parent company. At Microsoft he managed marketing and development for products such as Windows 95 and Windows NT. In 2003 he formed Pi Corp., a maker of cloud-based personal information management software, which was acquired by EMC earlier this year.

The executive change comes as VMware faces increased competition from Microsoft, which launched its Hyper-V virtualisation software last month, and from Citrix Systems' XenServer software.

Greene's departure probably stems from the need for VMware to adjust its strategy and corporate culture in the face of this increased competition, said Jay Litkey, the founder and CEO of Embotics, a VMware partner that provides software for managing virtual environments.

VMware needs to find more software and channel partners to support its growth, and it must also change its culture from one focused primarily on technology to one that puts greater emphasis on sales and marketing, Litkey said. These are all things that a former Microsoft executive should be good at, he said.

"Everybody knows that Microsoft doesn't always win by having the best technology, but they are a darned good marketing company," Litkey said.

Thomas Bittman, a vice president with Gartner, said Greene did a great job building VMware, a startup with good technology and very little competition, into the market leader it is today. "Now they have some serious competition, it's going to be a very different market," he said.

But Bittman criticised VMware for the way it announced Greene's departure alongside the lowered sales forecast, implying she was the primary cause. "I think that's just an excuse," he said.

VMware's growth has been impressive and investors simply expect too much of the company, he said. "We all knew that competition was coming, and now the markets are reacting like it's a surprise," he said.

VMware reported fourth-quarter revenue growth of 80 percent in January, which disappointed shareholders and sent its stock tumbling 34 percent. Its results for the first quarter this year were stronger, but it appears likely to disappoint investors again with its second-quarter results on July 22. Maritz will discuss the second half of the year at that time, VMware said.

Bittman said customers shouldn't be concerned about VMware's future. The company has a foothold with 90 percent of the world's 1,000 biggest companies, he said. But Greene was a strong presence, and it remains to be seen what effect her departure will have. "Diane Greene is the personality of the company, and you've got to wonder what happens when Maritz comes in. Will they maintain what's good, and what will they change?" he asked.

Greene had a hands-on style that extended even to the types of free snacks given to employees at work, and she fostered an open, collaborative environment, Bittman said.

He agreed with Litkey that VMware needs to build more partnerships with software vendors. The company has had a "healthy paranoia" that viewed potential partners as competitors, he said. That served it well in the past, but perhaps not any more.

"Hundreds of smaller vendors have popped up to try to find a seam in this market," he said. "Rather than nurture that, VMware has held them back. You don't see a lot of VMware partners that are very big, but it would be more in their interest to promote a healthy ecosystem because that's what's going to help them compete."

Microsoft won't be a strong competitor in the enterprise market right away, Bittman said, because its technology is too new. The "major strategic decision" for VMware is whether to fight Microsoft for the small and midsize business market, he said.

To do that, VMware will need to lower its prices, Litkey and Bittman both said. "Clearly there's a very large gap between a VMware ESX license and a Microsoft Hyper-V license," Litkey said.

 
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