Merrill is lowering their target on VMW from $31 to $15 based on 15x new CY09 EPS of $1.00 (vs. old $1.12), -5% y/y. The target equates to ~7x EV/ 4Q08 maintenance revenue run rate, in-line with ORCL. The new EPS of $1.00 is based on 10% decline in license revs and +70bps OM. The 15x multiple is a 25% premium to large cap software (ORCL and SAP) that have comparable license decline and modest EPS growth.

Q4:08 results in line but implied C09 guidance negative surprise

License revs of $314.8mn (+11% y/y) were in-line. However, ex-EA (enterprise agreements) and license backlog, license growth of an estimated 5% is muted for a seasonally strong Q. Implied license growth in upcoming seasonally slow Q109 is -11%, leading to -11% for the year under normal seasonality vs. +15% previously. Economic headwinds could make it tougher to win EAs (peaked at 23% of Q408 bookings, key license driver) which has been winding up growth recently. Unwinding to reasonable level could dampen near term growth.

Notablecalls: Would not be surprised to see VMW trade below $21 level today, possibly closer to $20 level. What this market hates the most is companies not giving guidance. Thats what VMW did.h