EMC to VMware CEO: Buh-bye

July 8, 2008, 6:36 PM UTC

VMware (VMW) announced this morning that its co-founder and CEO, Diane Greene, is leaving the company, “effective immediately.” Her replacement is Microsoft (MSFT) retiree Paul Maritz. At the same time, the company lowered its financial expectations for this year in the last line of its news release: “While VMware is not updating guidance for Q2, we expect revenues for the full year of 2008 will be modestly below the previous guidance of 50% growth over 2007.”

Predictably, VMware’s stock is being hammered on Tuesday, down $13, or 25%, to $40 an hour after the announcement. As relevant is the decline in EMC (EMC), VMware’s majority owner, whose shares are down about 9%, or below $14, a new 52-week low. (Maritz recently has been an executive at EMC, which bought a company he started.)

The most successful Silicon Valley IPO since Google, the VMware story has been fascinating to watch, kind of like the old ABC Sports “thrill of victory/agony of defeat.” At its height, VMware — which popularized software that “virtualizes” multiple computers — was so loved by investors that it singlehandedly drove the valuation of EMC, whose best move this decade may have been buying VMware before it had the opportunity to go public the first time. As Microsoft has stepped up its competition with VMware, however, the company’s growth projections have slowed. It’s still a scorcher in terms of growth, but expectations ran away from reality, and the stock drop is the result.

I wrote a feature about VMware’s CEO Diane Greene last year in which I wrote about her friction with EMC. It was a wrought situation. EMC controlled VMware, but VMware was the golden goose, giving Greene a great deal of power. Until, it seems, she couldn’t deliver. The executive quoted in VMware’s release noting Greene’s departure is VMware’s chairman, Joe Tucci, also EMC’s chief executive.