Virtualize This: VMware CEO Out, Stock Tanks, Big Revenue Miss

Wow…this came as a complete and total surprise. VMware has announced that Diane Greene, president and CEO of the hot virtualization company is leaving and will be replaced by Paul Maritz, whose company, Pi Corp., was acquired by EMC Corp. back in February. I am flummoxed by this move since VMware has been on an upswing and despite increased competition, has been pretty bullish about the future.

Greene didn’t give any hint to her departure when I met her at a recent tech gathering. More importantly, when I was hanging out with VMware co-founder (and Greene’s spouse) Mendel Rosenblum at our Structure 08 conference, he pointed to rosy skies ahead. At the bottom of the press release announcing her departure, however, is information indicating that the company might be facing a rough 2008, which explains the sudden change in management.

VMware expects to announce earnings for the quarter ended June 30, 2008 as scheduled on July 22, 2008 at 2pm PDT. On that call Paul will make observations about the second half of 2008. 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.

The markets aren’t too happy — the stock has tanked more than 30 percent already to as low as $36.51 a share. Shares of EMC are taking a pounding as well, falling as much as 13 percent to change hands for $13.18.

I think something big is going on — no CEO and co-founder just up and quits the company. The numbers might be worse than they seem. Did Greene pay the price for the missed numbers or is there something else going on? 

I couldn’t help but notice the fact that Joe Tucci, chairman of VMware’s board and CEO of EMC, was all over the press release announcing Greene’s departure, with not so much as a word from her, Mendel or any of the VMware co-founders. Of course, the fact that Diana’s replacement, Maritz, works for EMC only adds to the mystery.

By way of background, Maritz retired from Microsoft in 2000 and in 2003 started Pi Corp., a software startup focused on building cloud-based solutions for new ways of doing personal information management. Pi Corp. was acquired by EMC last February, and Maritz became president of EMC’s cloud division. Greene and her four co-founders launched VMware back in 1998. The road leading up to the company’s blockbuster IPO and subsequent stock market darling status was a long one.

Update from Stacey: Greene’s departure is likely more politically than financially motivated, according to sources in the virtualization community. They point to friction between Greene and her bosses at EMC, as well as EMC’s worries about Greene as the CEO of a publicly traded company as the reasons behind her departure. Most people suspect we’ll see her at the helm of another startup within a few months. VCs will certainly be calling her — if not today, then tomorrow.

For a look at how open source figures into the story, check out OStatic.