Analysts & Charts Capitulate in VMware (VMW)

VMware, Inc. (NYSE: VMW) is down sharply this morning on fairly aggressive selling.  The company’s guidance is the culprit, and that is on top of soft revenues.  Then this morning we have seen many analysts throwing in the towel here.  We would expect to see even more calls throughout the morning.  There are some more clearly defined levels on the charts now as well.  Here are today’s analyst downgrades or cautious calls:

• Cut to Sell from Hold at Lazard.
• Cut to Neutral from Overweight at JPMorgan;
• Cut to Underperform from Hold at Jefferies;
• Reiterated Sell at UBS;
• Reiterated Sell at Auriga.

After VMware’s earnings report, we noted, “There is a problem here.  It sees Q2 revenues flat or down in comparison to 2008’s Q2 period.  That is a real problem. Estimates are just shy of the $500 million mark, but the numbers for Q2 -2008 were $456.1 million.”  By our count, this signals that the field of virtualization is far from recession-proof.  We do not want to say that virtualization has peaked yet nor do we want to call a ‘do-over’ for the field, because this (and the notion of cloud computing) can offer huge savings for enterprises.  But sometimes spending money to save money doesn’t get realized.

We would note that traders should also keep an eye on the charts here.  The stock’s 200-day moving average is $27.14 and the 50-day moving average is $24.96.  As far as what the new resistance on the chart may be, VMware’s 20-day moving average is $28.18 and the 10-day moving average is $30.47.  These figures will of course change every day, but these numbers could all become very important for the stock in the coming days.

Shares were trading down about 10% after the report yesterday, but now they are trading down almost 16% at $27.40.  Its 52-week trading range is $17.25 to $72.08, and this one traded north of $100 after its blistering hot IPO in late-2007.

JON C. OGG