VMware Declines on Slower Growth Warning: San Francisco Mover

VMware Inc. (VMW) shares fell the most since December after an analyst said growth at the biggest maker of software that lets computers run multiple operating systems may slow amid market saturation and competition.

The stock tumbled 7.2 percent to $94.35 at 1:27 p.m. in New York, after dropping as much as 8.5 percent, the biggest decline since Dec. 21. The shares had climbed 22 percent this year before today.

As much as 60 percent of companies already have the type of server virtualization software VMware sells, according to Mark Moerdler, an analyst at Sanford C. Bernstein & Co. Maximum penetration will probably be around 80 percent, so “there is a high risk of a meaningful slowdown in the next 12 to 24 months,” Moerdler wrote in a note today.

More companies will look to cheaper or free products from rivals Microsoft Corp. and Citrix Systems Inc. (CTXS) for less critical tasks, he said. To compensate for slower growth in server virtualization, which lets companies save money by combining multiple workloads on a single machine, VMware must increase revenue from its management software, he said.

Even so, the company probably won’t gain the dominant position in that field, and other initiatives aren’t growing rapidly enough to make up for slowing growth, he said.

VMware, based in Palo Alto, California, is majority-owned by EMC Corp. (EMC)

To contact the reporter on this story: Dina Bass in Seattle at dbass2@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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