VMWare's market is shrinking in two ways. Competition, and Market Dynamics. Enterprise customers are more likely today than a year ago to rely on cloud apps and companies like Rackspace and Amazon so fewer customers. Also, with Hyper-V VMWare has greater competition than they've ever had. They are hoping/relying on an expansion into networking with Nicara and NSX. I think this is a great story with great messaging but they don't have the networking acumen nor the physical network installed base to make this work.
So, sure technically or emotionally this stock could go up. I'm not stock guru, but long term VMWare will have a tough time keeping their growth multiples.
That is where the Pivotal Initiative seeks to address. Actually if you follow the news Pivotal is poised to compete with AWS directly. And the best part is that part of that revenue from Pivotal will flow back to VMware's balance sheet. So yes they are aware of the threat but its not like they are doing nothing. Who will win ? Nobody knows we will just have to wait to see.