In the summer of 2007, Diane Greene was lauded as a business hero for leading VMware, a maker of business software, to the hottest stock...
In the summer of 2007, Diane Greene was lauded as a business hero for leading VMware, a maker of business software, to the hottest stock debut since Google.
But in the ensuing year, despite her popularity with employees and on Wall Street, her relationship with her directors, and especially VMware’s chairman, Joseph Tucci, grew increasingly chilly.
On July 7, she found out just how cold it had become. After Greene made a special presentation to VMware’s board, Tucci, who heads VMware’s parent company, EMC, pulled her aside, according to people familiar with the events, who asked for anonymity because they were not authorized to discuss internal company decisions.
Inviting Mendel Rosenblum, Greene’s husband and the co-founder of VMware, into the room, Tucci told Greene she was fired, effective immediately.
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And he said the board wanted Rosenblum, VMware’s chief scientist, to take her seat on the board. Rosenblum declined the offer.
When Greene’s firing was announced to investors the next morning, VMware’s shares plunged 24 percent, and the high-flying company was thrown into a tailspin from which it has yet to recover.
Since Greene’s departure, three other key executives loyal to her have left, including Rosenblum, who announced his resignation and return to Stanford as a full-time professor in a companywide message last week.
Competitors like Microsoft, Citrix Systems and Oracle are readying fresh assaults on VMware’s dominant position in the market for virtualization software, which allows businesses to use their computer servers more efficiently by running more programs on them.
And VMware’s new chief executive, Paul Maritz, once a top executive at Microsoft, is fighting to articulate how VMware can evolve from a darling upstart to a mature player capable of maintaining its growth while facing off against some of the world’s technology heavyweights.
Greene and EMC officials declined to comment on the circumstances of her departure.
But in a recent telephone interview from Ghana, Maritz said, “Any time you have a company in transition, you have challenges.”
At 10 years old, Palo Alto, Calif.-based VMware is the leading maker of virtualization software, which has become increasingly attractive to business customers because it allows them to run multiple copies of a program on a computer, saving hardware and energy costs.
VMware managed to double its revenue almost every year throughout the company’s early history. It became a true standout in a broader business-software market characterized by slowing growth.
EMC, a major player in storage software, acquired VMware in 2004 for $635 million.
In August of 2007, EMC looked to capitalize on VMware’s status and rising fortunes via an initial public offering.
Priced at $29, shares of VMware took off immediately and hit a high of more than $124 on Oct. 31. They closed at $34.94 on Friday.
Greene, who is fond of windsurfing, designed offshore oil rigs early in her career and came to epitomize VMware’s engineering-focused culture.
Although she was feared by some employees for her direct, confrontational style, many found her passion for technology endearing and inspirational.
However, the relationship between Greene and Tucci was always rocky.
She believed Tucci did not understand VMware business or her contributions, and he viewed her as too demanding.
Their spat became more public when Greene complained about a meager stock-options grant made ahead of the IPO in a 2007 Fortune interview.
In recent quarters, as VMware failed to meet Wall Street’s growth expectations, their relationship deteriorated further.
Greene was fired just ahead of VMware’s second-quarter earnings announcement, in which it reported 54 percent year-over-year growth on revenue of $456 million but a more modest long-term forecast for the year.
“The issue has not been necessarily absolute growth,” said Adam Holt, a software-industry analyst with Morgan Stanley.
“It has been the growth relative to expectations and the rate of change of that growth.”
New CEO’s task
Maritz, who was a top executive at EMC just before being appointed to VMware, is charged with keeping VMware’s product line vibrant while improving growth and repairing relationships with investors.
As the company prepared to court customers and partners at its annual VMworld conference in Las Vegas this week, Maritz has yet to formalize a specific strategy to accomplish those goals.
Just two months into the job, it is still too early to take on any “seismic moves,” he said.
Maritz’s challenge has been made more difficult by the recent executive departures.
Recently, VMware disclosed that Richard Sarwal, the executive vice president in charge of research and development, had resigned and returned to work at Oracle, which is also developing virtualization software.
Sarwal spent less than a year at VMware, after being hired by Greene as part of an eight-month search to fill the crucial research role.
In addition, Paul Chan, the vice president of product development at VMware, quietly resigned in August, saying he will leave next month after more than seven years at the company leading product introductions.
Meanwhile, VMware is facing the most serious competition in its history. Microsoft held an event last week for customers and partners to promote the release of its own brand of virtualization software, which is included with the Windows Server 2008 operating system.
Red Hat, which makes operating systems based on Linux, just purchased Qumranet, a maker of virtualization software that runs on servers and desktop computers.
Sun and Citrix are also set to reveal new versions of their competing products.
Maritz acknowledged that the executive departures have been difficult. For a software company dependent on its intellectual property, “having the best and brightest minds is critical.”
Sarwal’s departure was especially painful, but Maritz said he hoped to work with Oracle rather than compete with it.
Some observers contend that an overhaul of VMware’s management could prove beneficial.
“I would have liked for there to have been a smoother transition,” said Sushil Wagle, an analyst at J.&W. Seligman who follows EMC.
“But the old founders are very entrepreneurial and driven in that way. You need to think differently when a company gets as big as VMware.”