The world of enterprise software is often a bit set in stone. Not today, however. The Securities and Exchange Commission said today that it has accused cloud computing giant VMware of “misleading investors about its order book management practices, which allowed the Palo Alto-based technology company , in California, to increase its revenue in the coming quarters by delaying product shipments to customers, masking the slowdown in the company’s performance compared to its projections.
An agency investigation found that “beginning in fiscal year 2019, VMware began delaying delivery of license keys on certain orders until the end of the quarter so that it could recognize revenue from license sales. corresponding during the following quarter. Additionally, the SEC said in a press release, “VMware shifted tens of millions of dollars of revenue into future quarters, buffering those periods and obscuring the company’s financial performance as its business was slowing from fiscal 2020 projections. orders to manage the company’s revenue recognition schedule.
The full command is quite overwhelming. According to the SEC, VMWare falsified the numbers extensively during the aforementioned period. Meanwhile, analysts who have inquired about the continued trend of backlog reduction – with VMware Investor Relations staff or with VMware executives at hosted IR events – have been told that “[b]acklog represents only a small subset of our future revenue,” with no disclosure regarding the largely discretionary nature of VMware’s backlog and VMware’s use of
backlog to manage its quarterly total and licensing revenue, says the SEC.
Before drawing conclusions about what can happen when a company the size of VMWare is accused of fraud, the case, adds the SEC, has already been settled. Indeed, without admitting or denying the findings of the SEC order, VMWare has already consented to a cease and desist order and will pay an $8 million fine, the SEC says. Only $8 million! (VMWare, which currently has a market capitalization of $52 billion, likely paid its lawyers the same amount.)
VMware confirmed in its own statement that it has reached an agreement with the SEC, adding that it “believes this agreement is the right course of action for the company and remains committed to operating at the highest level of integrity, including respecting its public filings and communications with investors.
We’re still trying to make sense of what just happened here, but an obvious question is what chip giant Broadcom thinks of this now public development. In late May, Broadcom announced it was buying VMWare in a $61 million cash and stock deal that has yet to close. Presumably, he was aware of these accusations and moved forward anyway, but the company has yet to respond to our request for additional information. (We’ve also contacted VMWare and haven’t heard back yet.)
We also wonder how these allegations and settlement news will affect the reputation of Pal Gelsinger, who spent eight years as CEO of VMWare, leaving in February 2021 to become CEO of Intel.
Gelsinger was previously an executive at EMC, a storage company that acquired VMWare in 2004 and was itself acquired in 2015 by Dell (which created VMWare last year). As he left VMWare early last year, he said in an employee farewell video that when he took on the top job at VMWare in 2012, “I had never been CEO, I wasn’t software and I didn’t really know the products or the strategy,” he said.
“How little I knew,” he added in his video speech.
Some may now be wondering what Gelsinger knew in 2019 and 2020 as well.