VMware’s stock is down by about 20% today after it reported a bleak forecast and news that it was cutting 900 jobs yesterday.Those jobs will come from some of its oddball units, like SlideRocket, one of a pair of unusual companies bought by VMware in the spring of 2011. VMware makes software that helps servers run more efficiently in data centres. SlideRocket is a cloud service for interactive business presentations, kind of like PowerPoint on steroids.
VMware acquired SlideRocket around the same time as Socialcast, a Yammer-like tool for enterprise collaboration.
It’s not clear if layoffs will come to Socialcast, too, although VMware’s new CEO, Pat Gelsinger, sort of hinted about that during the quarterly analyst call, as transcribed by Seeking Alpha.
Our second set of plans involves realising other investments across the portfolio. As we invest in our core opportunities, we plan to scale back resources in other areas of the business. This includes shipping talent to new roles that support our core growth opportunities, as well as targeted reductions of approximately 900 people. Some of these will be provisional eliminations associated with streamlining operations and some will result from targeted product actions. Products we will de-emphasise include SlideRocket and other products which are not central to what our customers value the most from VMware.
Even though the company had a better-than-expected quarter, investors were scared off by VMware’s soft forecast. That caused at least seven downgrades today, reports Barron’s Tiernan Ray.
Analysts like Walter Pritchard with Citigroup are concerned that the company didn’t sign enough new three-year licence deals in 2012 and will be hurting even more in 2013, Ray reported.
VMware faces competition from Microsoft with its Hyper-V technology and from Red Hat with its KVM. Both of these cost a lot less than VMware.
VMware was always the more expensive option but it shot itself in the foot in 2011 when it raised prices on customers even more. One of Gelsinger’s first acts when he took over the company last summer was to kill the hated pricing scheme but the damage was done.
The high prices made customers look around for cheaper alternatives like the tech offered by Microsoft and Red Hat.
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