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VMware CEO Greene gets pink slip

Last week we ran a story on by Beth Pariseau about friction between VMware and storage vendors as more storage gets connected to virtual machines. Because the story focused on technology and not the internal workings of VMware, EMC was not among the storage vendors listed as banging heads with VMware.

But we found out today just how much friction there was between VMware and EMC, which still owns 86% of VMware after spinning out the rest in an IPO 11 months ago. The friction came to a head this morning when VMware’s board, chaired by EMC CEO Joe Tucci, replaced CEO Diane Greene with EMC executive Paul Maritz. Maritz joined EMC in February when EMC acquired his Pi Corp. and installed Maritz as head of its Cloud Division. Before he started Pi, Maritz spent 14 years with Microsoft and was on Microsoft’s executive committee.

EMC did not say Greene was fired, but its press release did not say she left on her own. Nor did it include any comment from Greene. On behalf of the board, Tucci thanked Greene “for her considerable contributions to VMware” and then predicted that VMware would increase its market share lead in the server virtualization market.

Execs from VMware and EMC have never had a warm relationship, but Greene and her team were allowed to run the company as they wanted as long as it kept growing revenue every year at astronomical numbers. Today’s release also mentioned that VMware was “modestly” adjusting its 2008 revenue guidance below the 50% year-over-year growth it forecast. But a slight miss is hardly enough reason to fire a CEO who has had nothing but success since EMC bought the company in early 2004. Perhaps it was an opening, though, and an excuse to make a move that the board wanted to make for awhile.

One financial analyst who follows both companies attributed the move to “a fundamental difference between VMware and EMC management” more than any failures on Greene’s part. There shouldn’t be much difference now — Greene was the lone VMware executive among VMware’s eight directors. Maritz becomes the sixth EMC rep on the board.

Maritz’s Microsoft background could be another reason for the move. Microsoft’s Hyper-V is now on the market as a competitor to VMware, which may be making some investors nervous. VMware’s stock price has also tumbled from $152.25 last October to $53.19 at today’s opening, but that was largely attributed to the overall market. Today’s news only accelerated the fall — shares fell more than 24% to $40.19 at the market’s close.

Forrester Research analyst Galen Schreck said the drop before today was likely due to market conditions more than increased competition. “I don’t think the entrance of Hyper-V has made much of an impact in this short period of time,” he said.

Going forward, Schreck said Maritz might want to take more of an industry leader role than Greene did. “Diane had been characterized as a humble person, not really flashy, not a big evangelist.,” he said. “Paul could take on a role with more public presence, be more of a keynote-speaker type.”

EMC hasn’t yet replaced Maritz as the head of its Cloud Division but an EMC spokesman said he expects a replacement soon.

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