Thursday, December 04, 2008
Eventually it all comes down to cash and selling power. VMware has been having trouble selling purely because it just doesn't have the kind of DNA and animals in their shops who are as capable of selling the products for recessionary times. Of course, you can sell when the times are good. You can also sell when people are in dire need to replace hardware and want to cut costs, but how can you sell if those IT managers and CxOs start asking you questions such as:
o Why should I invest in this new technology?
o Why should I not just consolidate my systems traditionally, bung all web servers on one big fat server and create application pools, bung all the DBs into one and create multiple instances?
o Why must I train my staff when I barely have cash to train them on apps?
You know how it goes, these questions have never stopped coming, and in harder times it gets harder, we all know it.
All these messages are being sent out to all employees across the globe.
You can still sell. I am selling! When I say sell i is not just the pure sell game but the real value that many are not able to articulate because the very pressure of sales and quarterly pressures are killing the fire of the ones who should be preparing for newer and unique ways to sell virtualization in the much harsher climate in 2009. There lurks danger but a lot of opportunities lay ahead as well. So while it may seem that I am generalizing the whole "failure to operate" phenomenon, it is just not for VMware but a lot of other vendors as well.
UBS's approach is also a very unique one. Did Heather cut the rating because UBS is totally frustrated about the way they invested heavily into VMware? I cannot imagine, as Eric was suggesting, that UBS is not aware of the counter advise their analysts are giving to a firm they bought 16+Million shares. They just seem to have this sense of urgency and the payoff is not coming. It won't be coming anytime soon. Not in 2009 and by 2010 a massive turnaround will be needed. And we all know, any firm going through transformation (much painful process) or turnaround (less painful but prone to losing/jettisoning a lot of talent in its wake - which we see is happening with the departure of the Dunes exec to a Credit Suisse spin-off DynamicOps), gets slower as it is working too hard to smoothen its sharp edges.
A lot of firms, smaller and bigger, valued $300-$400M are up for grabs and have undergone tremendous in market cap and are willing to rid the tough year by going for $30-$40 M! Can you imagine!
So this is really crunch time. Read further...
In September, as Lehman Brothers employees were cleaning out their offices, VMware was kicking off VMworld. The incongruity was striking, and company spokespeople went to great lengths to explain that virtualization (and thus VMware) not only would be spared from feeling the impact, it could alleviate some of the pain.
However, as noted at the time, "the economy remained the elephant at the show. Whether it was during casual hallway conversation or presentations, Wall Street loomed larger than Silicon Valley on everyone's mind."
In subsequent months, the elephant increased its presence throughout the tech world, and is trumpeting progressively louder.
VMware, like other companies, has had to contend with falling stock prices and increased competition, as it begins to deliver on the expanded vision it outlined back in September.
But just as the additional financial crises rumble below the surface, VMware might have a bigger tornado to fear.
Sandwiched within Monday's Technology Trader article on Barrons, Eric Savitz, offered up some interesting information about UBS and VMware.
According to the article, UBS software analyst Heather Bellini recently cut her rating on VMware to "Sell" from "Neutral," chopping her target price on the stock to $15 from $27. (The stock price was $29 when it first went public in August 2007, then peaked above $100 and is now $10 or so below the IPO price.) Bellini also downgraded profits markedly for both fourth quarter and 2009 noting.
This isn't terribly newsworthy in and of itself. However, what is interesting is the following statement:As of Oct. 31, the single largest holder of VMW shares other than majority owner EMC is UBS Global Asset Management, which held 16.4 million shares; that position, which represents 30.1% of the company's common shares, was up from 10.1 million shares earlier in the month, according to filings with the SEC.
So the company is largely owned by an investment firm. The same firm that is anticipating earnings to decline. Not entirely a vote of confidence.
Two possibilities come to mind:
Of course, a third possibility is that they don't read or follow their own advice.
- They see bargain and value all over it
- They are bolstering it up to get it through the coming months.
One thing is certain, however: The tech sector is feeling the pinch and VMware's status is not nearly as golden as it was a year or even six months ago.
Technology is important, but it is capital, whether invested or from revenue drives business development, R&D, market and, in the end, sales. Without capital, enterprises cannot purchase technology, whether hardware or software. New technologies, even those that will save money, are most vulnerable.
Now add to that the fact that the financial services industry is in turmoil, which means these companies aren't buying equipment or much in the way of software. A virtualization strategy may stand a chance if the costs are low and the right equipment is present, which may not work out so well for VMware in the end.
Or fourth alternative is to sell as much as possible as it might go down dramatically by Q3 2009!