Investor fears drag VMware lower

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Shares of VMware, the world’s leading “virtualisation” software company, fell 32.6 per cent on Tuesday, a day after it reported weaker-than-expected revenues and issued a tepid sales forecast for the full year.

The slide underscored lingering unease among technology investors amid concerns about a potential economic slowdown in the US.

It also reflected an adjustment of investor expectations for a company whose red-hot initial public offering marked a high point for the technology sector last year.

Shares of VMware, whose software helps companies save money by improving the efficiency of their computer systems, rose more than fourfold from their offer price following their debut on the stock market in August.

But they had fallen by more than a third since hitting a high of $125.25 in October amid concerns about increased competition from established software rivals.

Investors unloaded shares on Tuesday in response to VMware’s announcement that it had recorded $412m in sales in the last quarter. The shares were at $55.98 in mid-afternoon trading.

The results marked an increase of 80 per cent over last time but were just shy of the $417m that most Wall Street analysts had been expecting.

A weaker-than-expected forecast for the full year contributed to the slide.

VMware said it expected revenue growth of only 50 per cent this year, down sharply from the 88 per cent growth rate it managed last year.

The fall came in spite of news that VMware, which last year became the world’s fastest software company to reach $1bn in annual revenues, had more than doubled its net profit to $218m in the full year from $86m last time.

VMware said its weaker- than-expected full-year sales forecast was due to a variety of factors, including the company’s growing size, which is expected to make it more difficult to achieve the high double-digit sales growth to which investors have become accustomed.

The company brushed off concerns about a slower economic outlook.

“The 50 per cent growth rate that we’re forecasting is largely a function of us becoming a very large software company,” Mark Peek, VMware chief financial officer, added.

“When you look at about 50 per cent growth for 2008, that’s essentially doubling the size of the company in five quarters,” he said.

Apple, another hot technology stock, last week suffered a steep fall in its share price after it issued a second-quarter forecast that fell short of most analysts’ expectations.

Xerox, the copier and documents company, last week said it had seen a slowdown in orders from big US customers in the last quarter.

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