EMC Cloud Chief Takes CEO Reins at VMware; Investors Spooked

7/8/08Follow @wroush

In a surprise announcement this morning, Palo Alto, CA-based virtualization software maker VMware (NYSE: VMW) said that president and CEO Diane Greene has stepped down, and that Paul Maritz, formerly the director of the nascent cloud computing division at VMware’s parent company, Hopkinton, MA-based EMC (NYSE: EMC), has been appointed to replace her.

The company also said that 2008 revenues are falling behind projections. A full report on second-quarter performance is coming on July 22, but VMware said that 2008 revenues will be “modestly below the previous guidance of 50% growth over 2007.”

Investors aren’t thrilled about the changes. As of 1:20 pm Eastern time, VMware shares were trading in the neighborhood of $39—their lowest levels ever, and down about 27 percent from Monday’s close.

Greene’s departure is not a complete shock. VMware’s blockbuster IPO last August raised $1 billion and the stock’s run-up from an opening price of about $55 to more than $120 was one of the biggest tech-investment stories of 2007. But shares began a dramatic tumble around Halloween as doubts mounted over the strength of the company’s hold on the market for virtualization software, which helps companies consolidate multiple applications onto fewer servers. Relations between Greene and EMC CEO Joe Tucci were reportedly prickly, and that, together with disappointing sales in this quarter, may have led to the decision not  to renew Greene’s contract, which expired this month, according to Fortune‘s Scott Moritz.

Maritz’s appointment as Greene’s successor is a bigger surprise. The 14-year Microsoft veteran founded Pi Corporation in 2003 and briefly led EMC’s cloud computing efforts after the storage giant purchased the Seattle stealth-mode software startup in February. In his role as president and general manager of the Cloud Infrastructure and Services Division, Maritz was expected to bring focus to EMC’s cloud-based offerings, which so far consist mainly of the Mozy online backup system for home and business PCs.

It’s not clear whether Maritz’s assignment to lead VMware leaves the cloud division leaderless, or signals that some kind of closer integration of VMware into EMC’s cloud effort is in the offing. There’s some rationale for integration, since virtualization is one of the main enabling technologies behind cloud computing—the trend toward making remote computing resources available on demand, in the manner of electrical utilities. Greene had long resisted any integration between EMC and VMware’s products and business functions—in part because many VMware customers and partners, such as IBM, are direct EMC competitors.

There’s also no word on whether Maritz, who stayed in Seattle after the Pi acquisition, will now have to relocate to Palo Alto, where VMware is based, and what that change would mean for the roughly 100 software engineers at Pi, who are working on cloud-based personal information management tools (the details of which remain rather mysterious).

Tucci, who is chairman of VMware’s board, didn’t offer any clues about coming changes in the company’s announcement of Greene’s departure. He merely said “VMware is in a tremendous position to extend its lead in the virtualization market” and that the company’s board was “very pleased to be able to appoint an executive with Paul’s experience and track record to lead VMware to its next stage of growth and development.”

Wade Roush is Chief Correspondent and Editor At Large at Xconomy. You can subscribe to his Google Group or e-mail him at wroush@xconomy.com. Follow @wroush

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