VMware posted its first-quarter earnings, which showed a 9.3 percent decline despite realignment charges.  Though its services revenue and core earnings improved, shares fell 6.8 percent to $70.80 after hours, as the company lowered its full-year revenue guidance and offered weak estimates for the second quarter.

Joining Kristin Feledy to provide his Breaking Analysis in this morning’s NewsDesk is Wikibon Senior Analyst Stu Miniman.

Miniman explains that though VMware is still profitable, because it is restructuring, it lowered future estimates, which is never perceived well by investors.  But it should be noted that cutting down estimates was due to the fact that VMware is sending 500 employees to Pivotal – the VMware (EMC) spinout that focuses on the new modern era of developers and cloud, which GE is investing $105 million on.  It can also be expected that VMware will be losing more employees, aside from the ones shifting to Pivotal, as the year progresses.

Right now, VMware is focused on three things: Software-defined data center where Nicira, the company VMware bought last year that specializes in software-defined networking (SDN) and network virtualization; , the hybrid cloud; and the desktop virtualization VDI space, which the company is well positioned for but because of some constraints, it may take some time for their new strategy to play out.

“One of the biggest challenges is, some of these markets are new that they’re trying to create,” Miniman says.  “So Nicira, while they might have spent $1.2 billion to acquire them, it’s really kind of our estimates that most enterprises aren’t going to be ready for that Nicira-type of technology for a couple of years  Nicira’s first customers for that will really be hyperscale, really big companies, some large financials, telecoms and that’s where we really expect to see Nicira fitting in this year.

“VMware has taken the Nicira technology and the existing networking security pieces and put them together in a new offering that is expected to ship the second half of this year, but if you look at a billion dollar spent, I think it’s going to be a couple of years before  this technology has a chance to be on billion dollar run rate.  That’s kind of a forward looking position and Nicira is also one of the real strong footholds VMware has into OpenStack,” Miniman stated when asked about the challenges VMware is facing when it comes to software-defined data center.

To see more of Miniman’s Breaking Analysis, check out the NewsDesk video below.