Clouds darken at VMware

July 8, 2008, 4:10 PM UTC

By Scott Moritz

Shares of VMware, the business software developer whose initial public offering last year set records, fell sharply Tuesday after the company cut its sales forecast and replaced its CEO.

Palo Alto, Calif.-based VMware (VMW) said Paul Maritz will take over the top job effective immediately from Diane Greene, who also co-founded the company. VMware, which was spun out of data storage giant EMC (EMC) last August, also said 2008 sales would be “modestly below the previous guidance of 50% growth” over 2007.

VMware shares fell 30% on the news — hitting an all-time low of $36.51 — as jumpy investors sold on news of the sudden management shakeup and a growth slowdown.

It’s been a scorching ride for the company. VMware shares soared more than 400% after its August IPO, hitting a high of $125.25 in October. The run didn’t last long. Early this year, the company ran into stiff competition from the likes of Microsoft (MSFT) and other companies looking to profit from VMware’s main line of business: Virtualization software, which allows companies do more with less by tricking machines into running multiple operating systems requiring fewer new computers and servers.

Greene’s departure, however, isn’t entirely a surprise, as readers of Fortune’s Adam Lashinsky will recount. In a profile of Greene last year, Lashinsky noted that her ties to VMware chairman and EMC CEO Joe Tucci weren’t exactly warm. Her contract expired this month.

Greene’s departure could signal a new direction for the company. Maritz previously ran EMC’s so-called cloud computing unit, a division EMC created when it acquired Pi corportation, which Maritz founded. Cloud computing is term that refers to Web applications and the ability of computer users to get online access to software running on remote hardware. Google (GOOG) users, for instance, are using cloud computing when they store pictures on a distant server instead of their hard drive.

The prospect of VMware moving beyond its core virtualization business into cloud computing — together with its surprising sales shortfall — triggered the sell-off in company shares Tuesday. 

Prior to starting Pi, Maritz worked at Microsoft and helped develop and market Windows products.