VMWare, once Wall Street's darling, takes a beating

When VMWare (VMW), the world's leading virtualization software company, was partially spun out of EMC (EMC) so that its shares were available for public trading, it was considered the next big thing in the tech landscape.

In early 2007, the stock traded at $55. By October of that year, it changed hands at nearly $125. After yesterday's earnings report it plunged toward $25 after hours.

VMware's first quarter results were not so bad. The company earned $69.9 million, or 18 cents per share, up 62 percent from a net of $43.1 million, or 11 cents per share, in the period a year ago. Revenue was up 7 percent to $470 million. But forecasts about future earnings were a huge disappointment to shareholders.

Virtualization software was supposed to be so attractive to customers that VMWare revenue was expected to go up sharply for years. The firm's products allow servers to run a number of applications simultaneously, cutting the numbers of servers needed for most tasks and permitting customer to reduce the amount of hardware that they need to own and maintain.

But the recession seems to be killing the prospects of even the most useful enterprise software projects. That has put an end to VMWare's status as a growth stock.

Douglas A. McIntyre is an editor at 24/7 Wall St.

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