VMware stock prices slide below opening day of trading

VMware is known as the virtualization market leader with control of anywhere between 50 and 80 percent of the market. So much so, that the company has become synonymous with x86 server virtualization. It is almost to the point where the word VMware (virtualization) has become another Kleenex (tissue) or Xerox (photo copy) in discussions. To continue to grow and demand even more market share, it seemed like the logical choice was to take the company public.

And so, EMC did just that. VMware announced that it had raised $957 million with 33 million shares of stock sold with its initial public offering (IPO) of $29 a share. And this fast growing virtualization company was quickly being called the next Google of technology stocks.

And by the close of the first day of trading on August 14 2007, the stock price had jumped to a closing price of $51 a share.

After that, the price of the stock continued to skyrocket, and the technology darling reached as high as $124.38 a share on October 31, 2007.

But now, the company’s stock has fallen. And as of the close on Monday, March 10 2008, the stock was priced at $47.51 a share, dropping below the price at which it started some seven months earlier.

So why was there a sharp decline in the stock price? Good question.

The company took a hit back in January 2008 when it announced its Q4 2007 earnings reports. The stock declined by more than 30% with a steep drop from $83 a share down to $54.87. And it never seemed to recover. While VMware’s earnings were impressive, they fell short of analyst expectations.

The company is always under constant fire. As the leader of the market space, you always have a target painted on your back. And VMware is no exception. Big names like Microsoft, Citrix, Oracle, Sun, Novell and Red Hat are all gunning for a piece of the action. And then others like Virtual Iron Software and Parallels are also coming up fast looking for their slice of the market.

So competition is heating up. And people are saying that the hypervisor is becoming commodity. I’m sure VMware doesn’t like hearing that, but you can tell from the acquisitions that the company has made and its new product announcements that VMware is well aware of the fact that there is more to this game than just the ESX Server hypervisor. With Citrix and Virtual Iron significantly cutting the cost of their solution compared to VMware VI3, and Microsoft on the verge of releasing their $28 stand-alone version of Hyper-V, pricing will be an issue.

So while VMware continues to play down the threat of cost and competition, it seems as though analysts and investors are going to keep open a watchful eye on what happens next.