Analysts lowered their expectations for EMC Corp. and its subsidiary VMWare Inc. Wednesday, after VMWare replaced its Chief Executive.
The move sent both stocks tumbling in Tuesday's session.
EMC holds an 85 percent stake in VMWare, which makes software that allows a single computer to function like multiple machines. On Tuesday, VMWare ousted CEO Diane Greene and lowered its revenue forecast.
Analysts from Citi Investment Research, Deutsche Bank and Lehman Brothers cut their price targets on shares of VMWare after the move. Other analysts assessed the impact of the move on a possible spinoff of EMC's stake in VMWare.
William Choi of Jefferies & Co. said Greene supported the spinoff, and he had expected the move to come in the middle of 2009. But the new CEO "will likely require 12 to 18 months to wrap his arms around the business." He lowered his price target to $18 per share from $24.
Morgan Keegan analyst Brian Freed said a spinoff is now less likely, but he believes it is more likely that EMC will sell itself because of its lower value.
Thomas Curlin of RBC said EMC is not planning a spinoff at all, but if the stock is still trading in the mid teens months from now, shareholders may push for that spinoff or a sale of the entire company.
EMC shares dropped 11.6 percent in heavy trading Tuesday and hit a 52-week low during the session. They closed at $13.39, and gained 7 cents at $13.46 in premarket trading Wednesday.
VMWare dropped 24.4 percent Tuesday and reached its lowest price since its IPO in August 2007. It closed at $40.19. Shares rose 41 cents to $40.60 in premarket trading Wednesday.
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