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third-quarter earnings report after Tuesday's closing bell is likely to bear the forensic evidence of a mauling by both


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and the bearish economy.

But most of the bad news has already been priced into the former high-flying stock, which is down nearly 80% this year. Following a July 8 earnings warning and dismissal of the company's chief executive, shares of VMware fell 24%. Continued bad news, including anticipated cuts in corporate spending, has again cut the share price in half.

On Tuesday, VMware was off 3.8% to $19.85.

Even with the decline, VMware still commands a premium. With an expected full-year profit of 90 cents a share, VMware currently trades at 23 times earnings -- which is high relative to the calendar 2008 P/E ratios of 13 for Microsoft and


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and 14 for


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Accounting for the release of an initial virtualization software offering from Microsoft earlier this year, VMware lowered its full-year revenue growth expectations in July to a range of 42% to 45%, implying 2008 revenue of $1.88 billion to $1.92 billion. That was a crushing disappointment to investors who had vied for shares in late 2007 when revenue growth had approached 90%.

Moreover, Microsoft promises to broaden its line of virtualization management tools in the near future, which could further erode VMware's market share.

Meanwhile, market turmoil has added to fears that new technology spending has been delayed, if not frozen. "In a worst case scenario, our research indicates an IT spending increase of 2.3% in 2009, down from our earlier projection of 5.8%," Gartner head of research Peter Sondergaard said Thursday. That growth likely will come in emerging markets, as the U.S. and Western Europe will be the hardest hit by slowed spending, he added.

"A difficult macroeconomic environment is making expensive multi-year contracts a tough sell," Citigroup analyst Brent Thill wrote in a note on VMware in early October. With 70% of its revenue coming from indirect sales channels, the company has poor visibility into its own revenue stream. VMware is an investment banking client of the firm.

If second-quarter license sales trends carried over into the third quarter ended in September, VMware had a tough time. IDC's Worldwide Server Virtualization Tracker reported Thursday that during the second calendar quarter -- when Microsoft's virtualization software became generally available -- the Redmond, Wash. software giant's license share jumped to 23% of new shipments. During the same quarter, VMware sold 44% of new virtualization licenses.

That's a big jump for Microsoft, and translates to nearly one in four licenses sold, with just under two in four still going to VMware. Smaller players, such as Citrix, presumably account for the fourth.

For the third quarter, analysts polled by Thomson Reuters expect VMware to post earnings of 20 cents a share, excluding special charges, on revenue of $462.7 million. That's relatively modest top-line growth of 29% year over year. Analysts project 26% revenue growth for the December quarter and 23% growth for all of 2009.