5 Companies That Had A Rough Week

The Week Ending Aug. 21

Topping this week's roundup of companies that had a rough week is VMware, which changed its accounting procedures in such a way that the company's software license appeared to grow at a faster rate.

Also making the list is Hewlett-Packard's Aruba subsidiary, for losing a key channel executive; a downgrade of Cisco's stock by a major Wall Street firm; and Google and LogMeIn for scrambling to deal with data system problems that impacted customers.

Not everyone in the IT industry was having a rough go of it this week. For a rundown of companies that made smart decisions, executed savvy strategic moves -- or just had good luck -- check out this week's Five Companies That Came To Win roundup.

VMware Accounting Change Boosts Software Licensing Numbers

VMware quietly changed its accounting procedures last year in a move that boosted the company's software licensing growth numbers, according to a report that put a spotlight this week on VMware's efforts to convince Wall Street that customers are buying more than its vSphere server virtualization products.

Until last year's third fiscal quarter, VMware reported its Software-as-a-Service billings as maintenance revenue. But since the change, half of VMware's SaaS billings are reported as maintenance revenue and half as software license revenue, according to the report from ASC Research.

VMware's SaaS business, primarily its Infrastructure-as-a-Service and Airwatch products, accounts for only about 6 percent of the company's total revenue. But the accounting change added about $30 million to the Q3 software license number, allowing VMware to report 8 percent growth instead of 1 percent growth without the added SaaS billings, the report said.

While the accounting change is legal, the ASC Research report said investors should be aware that "VMware has rigged the numbers to make its enterprise software business look modestly healthy" and that Wall Street cash flow forecasts are "base-lined off of these misleading inputs."

Cisco Sees Its Stock Downgraded By Morgan Stanley

Cisco reported solid earnings last week, but it wasn't enough to prevent a leading Wall Street firm from downgrading the company's shares this week.

A Morgan Stanley report downgraded Cisco from "overweight" to "equal weight" because the networking giant faces a tough road ahead due to stiff competition, a "weak" product refresh cycle, and excessive research and development spending in order to prevent market share loss.

During the week, Cisco stock lost nearly 9 percent of its value from its Aug. 14 closing price of $29.03 per share to its Aug. 21 closing price of $26.47.

Aruba Channel Chief Says Bye-Bye To HP

Cisco wasn't the only company to have a setback this week. Aruba Networks channel chief Karl Soderlund has left to take a job with security specialist Imperva, where he will serve as vice president of worldwide channels and alliances, it was learned this week.

Hewlett-Packard acquired Aruba, a developer of mobile network access technology, in May for $3 billion. Since then HP has operated Aruba as an independent subsidiary.

But that hasn't stopped Aruba executives from leaving. Earlier this month John DiLullo, Aruba executive vice president of sales and services, left to take a job with F5 Networks.

Google Loses Data After Multiple Lightning Strikes

Google acknowledged this week that its Google Compute Engine lost a small amount of customer data after a series of lightning strikes late last week at its Belgium data center that damaged the disk storage systems.

Four successive lightning strikes hit the local power grid around Google's European data center on Thursday, Aug. 13, according to an incident report posted on the Google Cloud Status page. That caused a loss of power to storage systems that host disk capacity for Google Compute Engine instances for some European customers, resulting in errors from the persistent disks that support the GCE instances between the day of the strikes and Monday, Aug. 17.

While Google was able to restore almost all of the damaged persistent disks after the incident, the company admitted that "there was permanent data loss" on less than 0.000001 percent of the persistent disk space.

"Google takes availability very seriously, and the durability of storage is our highest priority," the incident report said. "We apologize to all our customers who were affected by this exceptional incident."

L.A. Explosion Impacts LogMeIn U.K. Customers

Google wasn't the only company wrestling with service interruption problems this week. An explosion in a high-rise building in downtown Los Angeles on Thursday disrupted service for U.K. customers of LogMeIn, the Boston-based provider of remote access and remote desktop applications, according to published reports.

The Thursday evening explosion in a 19-story building at 811 W. Wilshire Blvd. knocked out power to a section of downtown Los Angeles.

Along with hitting several area ISPs, the power outage impacted one of LogmeIn's global data centers, according to a story on The Register website that quoted a LogMeIn spokesman. The story indicated that the LogMeIn outage last several hours and created headaches for the company's U.K. customers.