Beginning of the end for VMWare as shares drop heavily

A 80 percent increase in Q4 sales figures could not prevent VMware's shares from falling heavily on Monday afternoon after the close; VMWare's shares are down a whopping 26.83 percent at $22.27.

VMWare reported an 88 percent increase in revenue in 2007, at $1.33 billion but this was not enough to calm the fears of investors as its Q4 revenues were below what Wall Street expected; this led to some forecasting that 2008 would be a difficult year for VMWare.

VMWare's CFO Mark Peek acknowledged that the company would grow at a slower rate - 50 percent - in 2008, which would bring the company's revenues in 2008 to $2 billion, short of the $2.08 billion analysts' estimates.

License revenues grew by 70 percent while services brought in an extra 90 percent revenue, according to Peek.

VMWare's stocks have been battered since the beginning of November when its shares reached $125.25; they are now worth only $61.35.

The arrival of big competitors like Oracle, Microsoft and Citrix has made it more difficult for EMC and VMWare to maintain their growth rate in the red hot virtualisation market.

VMware Officials have also pinned down the increasing size of the company's revenue base as another reason why a rise of 88 percent couldn't be sustained.

Microsoft has been particularlarly active, forging alliances with Citrix - which acquired Xensource in 2007 - and giving free Virtual PC 2007 for example.

The Redmond company has also announced that it would be loosening some license constraints on its Operating systems while pushing virtualisation as a feature, companywide.

EMC, which spun off VMWare back in March 2007, saw its shares dropped by more than 10 percent as its market capitalisation approaches that of VMWare ($31.78 billion vs $35.48 billion).