VMware Inc.'s high-flying stock plunged by more than 30 percent Tuesday as investors reacted to a disappointing fourth-quarter earnings report that raised worries about the business software maker's ability to cope with tougher competition and a slowing U.S. economy.
The jarring descent shoved VMware's shares down to their lowest levels since the first few days after the Palo Alto-based company mesmerized Wall Street with its stock market debut last August.
It marked Silicon Valley's biggest initial public offering since Google Inc. in 2004, triggering a buying spree that more than quadrupled VMware shares from their IPO price of $29.
VMWare became a hot commodity by leading a computing trend known as “virtualization” – a process that enables corporate data centers to lower their expenses on power and equipment by enabling a single computer to function like multiple machines.
Although VMware's stock had drooped since hitting a high of $125.25 in October, investors remained largely bullish about the company's prospects until Tuesday's sell-off.
Sentiments soured after VWware released its fourth-quarter results late Monday.
Although the company's profit more than doubled to exceed analyst expectations, VWware's revenue of $412 million fell $5 million below the estimates guiding Wall Street. What's more, VMware's forecast of 50 percent revenue growth for 2008 was slightly below the 55 percent to 57 percent range envisioned by several analysts.
The letdown caused VMware shares to plummet $26.55, or 32 percent, to $56.45 in Tuesday afternoon trading, erasing about $10 billion in shareholder wealth in the process.
VMware's fourth-quarter performance and 2008 outlook renewed concerns that its growth will decelerate as Microsoft Corp., the world's largest software maker, expands into the virtualization market while several other challengers, including Oracle Corp. and Citrix Systems Inc., also invade the turf.
Analysts also are worried that more companies will curtail their spending on software like VMware's as they brace for a possible recession.