CEO Pat Gelsinger is the latest in an executive exodus from VMware and some analysts are 'not confident' in the firm's future: 'There may be trouble brewing beneath the surface' (VMW)

<p><img src="https://static1.businessinsider.com/image/5cc759c8b14bf4415d0f6113-1134/screen shot 2019-04-29 at 120007 pm.png" border="0" alt="Pat Gelsinger" data-mce-source="Business Insider"></p><p></p><bi-shortcode id="summary-shortcode" data-type="summary-shortcode" class="mceNonEditable" contenteditable="false">Summary List Placement</bi-shortcode><p>Wednesday's announcement that <a href="https://www.businessinsider.com/intel-bob-swan-vmwares-pat-gelsinger-2021-1">VMware CEO Pat Gelsinger's is departing</a> for Intel in February is a big loss for the company, analysts say.</p><p>And it's not only Gelsinger: In June, VMware lost its SVP of worldwide customer services, <a href="https://www.linkedin.com/in/jim-delia-4b3884/">Jim Delia, to ServiceNow</a>, followed in July by chief customer officer <a href="https://www.linkedin.com/in/scottbajtos/">Scott Bajtos fleeing for FinancialForce.</a> In December, <a href="https://www.businessinsider.com/nutanix-new-ceo-ramaswami-rival-vmware-coo-2020-12">COO Rajiv Ramaswami</a> resigned and joined Nutanix as CEO. (In late December, <a href="https://www.vmware.com/company/news/updates/2020/vmware-statement-litigation-rajiv-ramaswami.html#:~:text=Rajiv%20Ramaswami%20failed%20to%20honor,strategic%20vision%20and%20direction%2C%20Mr.">VMware actually sued Ramaswami</a>, accusing him of breaching his legal and contractual duties to the company by taking "secretly meeting" with Nutanix for two months.) Most recently, cloud management general manager Ajay Singh departed to become chief product officer at Pure Storage earlier this month.&nbsp;</p><p>Those departures, <a href="https://www.protocol.com/enterprise/vmware-replacing-pat-gelsinger-dell">among others</a>, have investors concerned.&nbsp;</p><p>"The recent executive turnover is such that it is hard for us to not interpret it as a signal of weakened confidence in VMware's growth outlook," Karl Keirstead, managing director at UBS, wrote in a note to clients this week.<strong>&nbsp;</strong></p><p>The executive exodus is especially concerning, analysts say, as VMware is working through its strategy of selling software for the cloud and facing a&nbsp;<a href="https://www.businessinsider.com/dell-considering-spinning-off-vmware-stock-jumps-2020-7">possible spin out</a> of parent company Dell.&nbsp;</p><p>VMware leaders, customers, partners, and investors all respected Gelsinger, Keirstead said, and his surprise departure lends a "negative read on VMware's outlook."&nbsp;</p><p>While the firm still has a "deep management bench," including interim CEO Zane Rowe and co-COO's Sanjay Poonen and Raghu Raghuram, "the collective impact and timing of these departures signal to us that there may be trouble brewing beneath the surface at VMware," William Blair partner Jason Ader wrote in a note to clients.</p><p>Indeed, Piper Sandler slashed its price target for the $56.6 billion company's stock to $157, down from $178, and UBS lowered its 12-month price target to $145 from $152. Mizuho and William Blair, meanwhile, maintained price targets of $147. The&nbsp; firm's stock, worth about $135 per share as of Friday afternoon, is down 5% <a href="https://www.businessinsider.com/vmware-stock-drops-after-ceo-pat-gelsinger-heads-to-intel-2021-1">since the announcement</a> on January 13, and down roughly 10% over the past year.&nbsp;</p><p>"We're not confident that [VMware] will execute smoothly going forward," Gregg Moskowitz, managing director at Mizuho, wrote in a note, "And we remain cautious on the overall compute business." While VMware's initial focus was data center virtualization, it has expanded its reach into cloud and security, among other areas, under Gelsinger's eight-plus year watch.&nbsp;</p><p>In response to a question about recent turnover and the effect on the firm, a spokesperson said that VMware has a "strong executive bench" and continues "to attract outstanding talent," including recent hires like chief marketing officer Carol Carpenter, who joined from Google Cloud in June, chief digital transformation officer Mike Hayes, who joined from Cognizant in October, and SVP of worldwide partner sales Sandy Hogan, who joined from Rackspace in June, among others.&nbsp;</p><h2><strong>VMware needs a 'high-caliber replacement'&nbsp;</strong></h2><p>With Gelsinger leaving, VMware is on the hunt for a new CEO, and several analysts told Insider <a href="https://www.businessinsider.com/pat-gelsinger-intel-vmware-coo-sanjay-poonen-ceo-2021-1">that VMware's current COO, Sanjay Poonen, is the most logical choice</a>.</p><p><strong><em>Read more: </em></strong><a href="https://www.businessinsider.com/pat-gelsinger-intel-vmware-coo-sanjay-poonen-ceo-2021-1"><em>Analysts agree VMware COO Sanjay Poonen is the 'obvious choice' to replace departing CEO Pat Gelsinger</em></a></p><p>Others, however, said VMware would be better served by finding an external candidate.&nbsp;</p><p>"Regarding the CEO search, management noted there are several internal candidates, but opening up the search to external candidates is the right thing to do given the opportunity to continue the transformation of a company of this size and importance in a post-COVID world that moves 'Faster to the Future,'" RBC Capital Markets managing director Matt Hedberg wrote in a note to clients.</p><p>Analysts previously told Insider that if VMware were to look to an outside candidate, it would likely seek a leader in cloud computing from the likes of Amazon Web Services or Microsoft.&nbsp;</p><p>"We expect the company to seek a high-caliber replacement externally," Mizuho's Moskowitz wrote, "Although VMware nevertheless faces a number of challenges, and it's unclear who will fill [Gelsinger's] shoes."&nbsp;</p><p>The company told Insider that its board is "committed to a thorough global executive search process of diverse candidates."&nbsp;</p><p><img src="https://static2.businessinsider.com/image/5e4f1456a27fc555e5061182-2400/sanjay poonen.jpg" border="0" alt="VMware Sanjay Poonen" data-mce-source="VMware"></p><h2><strong>VMware is 'going to be fine'</strong></h2><p>Although the departure of key executives at VMware leaves some analysts concerned, others say VMware will be able to continue its path of growth. <strong>&nbsp;</strong>In its most recent earnings report, VMware posted revenue 8% higher than the previous year, and projected an 5% year-over-year increase for the following quarter.</p><p>VMware is still in a good position to drive revenue growth in the coming year and "remains in good hands," even without Gelsinger, RBC's Hedberg said.</p><p>Lopez Research founder and principal analyst Maribel Lopez says the company has an advantage in winning over new customers for its hybrid cloud products.&nbsp;</p><p>"They've got a leg up because people are already using them," Lopez told Insider. "They've got a leg up because they found a way to gracefully work with Kubernetes and other things. Now the question is, what's next'"</p><p>VMware has so far "pivoted nicely into the cloud world," Forrester vice president and research director Glenn O'Donnell said. However, it will need to attract application developers and push into edge computing, which brings computing and data storage closer to the location where it's needed.&nbsp;</p><p>"From the VMware context, it's a solid company," O'Donnell told Insider. "VMware is going to be fine, and Intel needs some help. Pat is the right guy to run it."</p><p><em><strong>Do you work at VMware' Got a tip'</strong>&nbsp;Contact this reporter via email at&nbsp;<a href="mailto:rmchan@businessinsider.com">rmchan@insider.com</a>, Signal at 646.376.6106,&nbsp;Telegram at @rosaliechan, or&nbsp;Twitter DM at&nbsp;<a href="https://twitter.com/rosaliechan17">@rosaliechan17</a>. (PR pitches by email only, please.) Other types of secure messaging available upon request.</em></p><p><strong>SEE ALSO:&nbsp;<a href="https://www.businessinsider.com/andreessen-horowitz-planetscale-poached-10-github-employees-2021-1" >The Andreessen Horowitz-backed database management startup PlanetScale has been quietly poaching senior GitHub employees</a></strong></p><p><a href="https://www.businessinsider.com/analysts-pat-gelsinger-vmware-executive-departures-intel-2021-1#comments">Join the conversation about this story &#187;</a></p> <p>NOW WATCH: <a href="https://www.businessinsider.com/what-its-like-to-do-your-own-taxes-for-the-very-first-time-2018-2">July 15 is Tax Dayhere's what it's like to do your own taxes for the very first time</a></p>
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