Here is my take on this. Today 50% of the float changed hands, given that EMC owns 86% of it and float is really 40 million shares, todays trades were 21 million.
The margin people, the Cramer followers, the pumpers, the hype are all gone.
Who were the buyers today, afterall we had 21 million shares? I guess it probably is the Donald Trump crowd, Cisco, Intel, Bill Gates and company.
Did VMW miss revenue estimates? The answer is No. Why were revenues under-reported intentionally.
a) Management wants to lowball since their compensation is on performance.
b) They can choose to mask their strength to keep competition away, by choosing to put sales into "deferred unearned revenue" section.
c) They wanted Cramer crowd out and, investors in.
d) They wanted to tone down hype.
It was just too funny to see management struggle to try to explain why revenue will only grow 50%. Answers such as:
1) We do not see any recession effects
2) No, margins will increase, no pressure from competition
3) No, our clients do not intend to switch to competition.
4) Yes our deferred revenue will grow 50% sequentially
5) Yes we are paid upfront for 2 year contracts
6) Yes our cash flow will increase 50% sequentially
7) No, EMC did not tell us to tone down numbers
8) No, We are not pricing in anything negative
9) No, We will not provide forcast on our balance sheet
10) Yes, we hired 4,000 people due to strong demand
11) Yes, we expanded our channel base by another 4,000
12) International sales are very strong.
13) We have a strong pipeline of products in 2008
14) MSFT product is of no threat, it is similar to our first version which we are giving away for free.
15) No, we will not sell to desktop computers where MSFT is since there is no money there.
One analyst said that he was at a complete loss to understand how VMW could see such a dramatic decrease in revenue, even in the worst of circumstances they would report much better numbers than those given to them, why are you doing this????
READ THE TRANSCRIPT, WHY IS VMW DOING THIS, WHY???
Interesting post. Personally I think they are trying to reduce expectations while managing HUGE growth, not the least of which is the headcount increase. This is going to significantly impact operational costs; adding 1500 or 2000 people ain't cheap.
Their biggest challenge is not MSFT but retaining their core culture while managing that growth.
My feeling is that at this level the potential downside is maybe 5-7 points. Over the next quarter the possible upside is much greater.
I personally didn't get the part about lowering the outlook for revenue growth. Doesn't make sense when they are cooking on all cylinders.
I also agree that these numbers might have been "massaged" upward had they wanted to if the deferred rev just had some put in present rev.
I have noticd that companies like AAPL were very conservative in their guidance.
I think VMW is setting things up for dramatic upside surprises.
While they probably didn't want this disaster they probably wanted to calm, things down, get some more solid investors ( funds) in the stock and grow the right way.
Ditto here, this product has no legit. competition and Microsoft's virtualization technology is 5-6 yrs behind. Cisco should be more worried about the rise of network virtualization than the other way around. If a server environment can be virtualized, so can the network it communicates on... Luckily for Cisco, they are heavily invested in VMW ;)