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 Note to Self: If I ever end up with the unenviable job of running a publicly traded company Never, Never, Never provide equity analysts guidance that you expect the current quarter's revenues to be flat or down compared to the year before. Especially, if we haven't even been hinting at this before hand. I say this tongue & cheek. Providing guidance that revenues will be down sooner rather than later is always welcomed by investors & when management attempts to mislead investors they are typically penalized. Moving on... Well in case you don't keep on eye on the markets; VMWare is down approximately 20% today based on the guidance I just eluded to that was given yesterday after the close. In actuality this should not have been so surprising. Most of the research coming out of the major & boutique tech research shops still has VMW as the dominant choice/option for Server Virtualization at Large & Midsized Enterprises. Granted all the big shops already have VMW in place at some degree, we all know this. Which at first glance looks bullish to the investment community, but the underlying issue takes a little bit deeper digging to reveal. Look at the same research houses' output 6 - 12 months ago & you'll still see the same 2 major themes in the Server Virtualization space that I just mentioned; It's definitely coming in the next 24 - 36 months to essentially everywhere, if it isn't there already & that VMW is by far the number 1 vendor/solution. But then take a look at when end users expect to put into their 'Near Term' plans & how big a license agreement they intend on securing. Not so hot when that's done. Over the last 4 weeks CIOZone just performed our first Survey with the CIOZone Research Network (CRN) & coincidentally enough the topic was "Virtualization & Servers". Please visit http://www.ciozone.com/index.php/surveys/result/Virtualization-and-Server-Survey/index.html to view the results of our proprietary research survey. OK, I admit it it wasn't a coincidence - I knew earnings season was coming. Additionally, the members of the CRN received the results several days prior to yesterday's announcements.** One questioned posed was: Do you intend to Spend: More, About the Same or Less with the following Vendors in 2009. Not surprisingly, VMW was by far the leading receiver of 'Spend More' votes with 55% of all respondents indicating so. By comparison, Red Hat was second in the 'Spend More' category with 27%. Which was also not surprising when you look at the answers to the: Which OS will experience the greatest growth in 2009? For the first time ever in my experience Linux was at a dead heat with MSFT. This is no doubt a result of the economic issues facing the global economy & the impact it has had on IT professionals' budgets - which in turn forces one to work with cheaper alternatives = open source...hello Red Hat. The unsettling truth that VMW announced yesterday regarding their revenues for Q2 2009 are hinted at when you look at the 1st & most important question of our survey - which truly puts all the rest in context... Compared to 2008 How do you Expect your Server Budget spending to Change in 2009? The answers to this question revealed the problem VMW essentially faces: 16% expect an increase of 10% or better & 16% expect a decrease of 10% or greater, which is a net net Goose egg. Furthermore, 39% expect a increase of 0-10% & lastly, 29% expect a decrease of 0-10%. Again, essentially a Goose egg. This is where the problem lies - its not that end users don't have or don't want to have VMW 'In Plan' at some level, it's that even if they do it's at a low dollar amount because end users just don't have the money right now. The data is even more revealing when you cut the verticals of the respondents (ie- F1000, North America vs. Euro, etc.).*** Our research revealed that only 28% of end users have even tested out a different hypervisor & of those only 12% planned on using that alternate solution. Therefore, one can presume that VMW is still the preferred solution, albeit the gap is most definitely closing. So if one puts on their Investor cap they must ask themselves: Is today's downward spike an opportunity to what will be a bright future when end users get their budgets back & if so, When does that happen? Or is it just another immeasurable delay in the what was once a Blitzkrieg-like march to Virtualization & if so, will that create an opportunity for everyone else to close that gap even further. In investor speak: VMW is a Neutral right now, but a great name to start building a thesis Short or Long on based on more work. In the End User world: still a Buy... if you can afford it. ** To Learn more or Join the CIOZone Research Network (CRN) Please email Tom DelVecchio directly at
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*** The ability to pose polls/surveys & cut/mine the data is available only to CIOZone Research Network Members.
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