VMware hits bumps in the road

Last year, VMware was one of the top tech stock performers on the market. However since then, it has lost about two-thirds of its value this year and has travelled over some bumpy roads. The company’s stock has had a lot of trouble lately, and last week it sank below its initial IPO trading price for the first time.

VMware went public in August 2007 with an IPO price of $29 per share. Within a short time after that, the Wall Street darling skyrocketed to above $125. The stock has recently faded, and last week hit a 52-week low of $22.67. The stock has since rebounded, climbing back just above IPO price to close at $30.12.

Analysts and investors are worried about the growing competition mounting from the likes of Microsoft, which recently introduced its own rival virtualization hypervisor technology to market to compete with VMware’s leading virtualization platform. Folks are also concerned that organizations will reduce technology spending while they cut corporate IT budgets because of the weakening economy.

Corporate turnover has also been a concern. Many are concerned that the “brain trust” of the company has been leaving. After Diane Greene’s removal, co-founder and chief scientist Dr. Mendel Rosenblum left. Executive Vice President of Research and Development Richard Sarwal also left the company to go back to Oracle. And on Friday, VMware confirmed that Paul Chan, a senior executive in charge of product development, is the latest to leave after serving seven years with the company.

VMware said that turnover is inevitable, but that the company is putting things in place to try and keep people from leaving. During the show, Maritz told reporters that smart people may be leaving, but that there are plenty of smart people that make up the company and VMware is still recruiting and bringing in smart people all the time.

The company also just finished off its widely successful trade show, the largest virtualization event in the world, VMworld 2008. The show reached capacities somewhere above 14,000 people and brought out the company’s popular ecosystem which showcased their own wares to event attendees.

During the show, VMware outlined its product roadmap for 2009. With it, the company hopes to further differentiate itself from the path being taken by Microsoft and Citrix. The 2009 plan has VMware expanding its line of management tools, an obvious place to earn additional money as the hypervisor continues down the road of commodity. And it seemed well received by audience members implementing the technology in their own backyards.

But listening to the keynote presentations and the 2009 roadmap made me wonder how these plans would affect the VMware partner ecosystem. As the company sounded off on the different applications that it would add into its management cloud, there seemed to be a lot of overlap with the companies that were exhibiting in the solutions expo hall.

VMware is the giant that it is today because of good technology created internally, no doubt. But you also have to give a lot of credit to the strong partner ecosystem that has formed around it creating innovative applications that enhance the core offering.

Analysts are expecting the company to post $465.2 million for its third-quarter. With the current financial market turmoil taking place and the reports that software spending growth is down this year, eyes in the investor community will be watching closely.