Maureen O'Gara

Virtualization maven VMware, EMC’s prized possession, has hit a nasty pothole and plans to regroup.

It’s going to cut roughly 7% of its workforce or 900 people on the expectation that its revenues are going to drop because corporate customers and federal accounts, it bread and butter, are cutting back, some poached by Microsoft, which is said to be forcing VMware to cut its prices.

VMware is also going to exit some lines of business to focus on what is strategic – without saying what – and consolidate facilities this year.

It will take a charge of $90 million-$110 million to cover all the costs.

Its stock fell almost 15% after-hours Monday as a result, skittering to $83.99.

The company figures the best it can do this quarter is sell somewhere between $1.17 billion and $1.19 billion, up 11%-13%, although Wall Street was counting on $1.25 billion.

It said it won’t see an uptick in contract renewals until the second half. It might see license growth of only 8%-11% this year.

For the full year, the company sees $5.23 billion to $5.35 billion, on license revenue growth of 8% to 11%. That is below the consensus for $5.43 billion.

Ironically in Q4, which it reported Monday, it made $205.8 million, or 47 cents a share, up 2.7%, on revenues up 22% to $1.29 billion, more than expected.

Despite the headcount cut, VMware means to keep hiring, ending the year up a thousand.

Pat Gelsinger is now VMware’s CEO, having replaced Paul Maritz, who is now working on strategy for EMC.