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VMware Q4 Profit Down; Guides Q1, FY10 Revenue Above View; Stock Surges - Update

VMW 012510

Virtualization software maker VMware, Inc. (VMW) reported Monday a significant drop in profit for the fourth quarter, impacted by an increase in operating expenses. However, the company's quarterly earnings came in above analysts' expectations, as did quarterly revenues. Looking ahead, the company has forecast first quarter and full year revenue to come in above analysts' current estimate. VMware shares rose more than 17% in after hours trade on the NYSE, following the news.

Palo Alto, California-based VMware's net income for the fourth quarter slipped to $56.41 million from $111.45 million in the same period last year. On per share basis, net income per Class A and Class B share for the fourth quarter more than halved to $0.14 from $0.29 a year earlier.

On adjusted basis, non-GAAP net income for the quarter dropped to $126.63 million or $0.31 per share from $141.73 million or $0.36 per share for the fourth quarter a year-ago. Adjustments for the recent quarter included stock-based compensation of $58.37 million.

On average, 32 analysts polled by Thomson Reuters expected the company to earn $0.26 per share for the quarter. Analysts' estimate typically excludes one-time special items.

Quarterly revenues rose 18% to $608.20 million from $514.60 million in the corresponding quarter last year. Analysts anticipated revenues of $553.73 million for the quarter.

GAAP operating income for the quarter dropped 30% to $71.16 million from $102.11 million for the fourth quarter a year earlier. Non-GAAP operating income for the fourth quarter was $157.62 million, up 17% from the fourth quarter of 2008.

Paul Maritz, president and chief executive officer observed, "The quarter's strong performance, anchored by demand for vSphere, signals that virtualization is a key technology for customers who need to save money today, yet invest in a strategy that is central to the emerging cloud computing model."

In the sequentially preceding third quarter, the company reported GAAP net income of $38.2 million or $0.09 per share, compared to $83.3 million or $0.21 per share a year-ago. Excluding items, non-GAAP net income for the third quarter was $95.1 million or $0.24 per share, compared to $93.1 million or $0.24 per share in the prior year quarter. Revenues for the third quarter rose 4% to $489.75 million from $472.12 million in the same quarter last year.

For the quarter under review, operating expenses for the fourth quarter were significantly higher than a year-ago. Sales and marketing expenses rose to $229.60 million from $178.60 million a year earlier. Research and development expenses rose to $136.26 million from $110.51 million in the same period last year, while cost of license revenues increased to $40.94 million from $22.12 million for the year-ago period.

The company's license revenues dropped to $304.21 million from $314.84 million a year-ago, while services revenues rose to $303.99 million from $199.76 million a year earlier.

Amongst others in the industry, EMC Corp. (EMC) is scheduled to report its earnings on January 26. Analysts currently expect the company to report earnings of $0.30 per share on revenues of $4.03 billion for the fourth quarter.

On January 12, the company had said that it has entered into a definitive agreement to acquire Zimbra, a vendor of email and collaboration software, from Yahoo! Inc.(YHOO). However, financial terms of the deal, which is expected to close in the first calendar quarter of 2010, were not disclosed.

For the full year, the company's net income plunged to to $197.10 million from $290.13 million for the same period a year earlier. On per share basis, net income per Class A and Class B share for the full year dropped to $0.49 from $0.73 a year earlier. On adjusted basis, non-GAAP net income for the period decreased to $401.03 million or $1.00 per share from $415.61 million or $1.05 per share a year-ago. Full year revenues rose to $2.02 billion from $1.88 billion for the same period a year earlier.

Analysts had expected earnings of $0.96 per share on revenues of $1.97 billion for the full year.

Looking forward to the first quarter, the company anticipates revenues to be in the range of $580 million to $600 million. Thirty analysts currently anticipate revenue of $530.27 million for the quarter.

Looking ahead to the full year, the company expects annual revenue to be in the range of $2.45 billion and $2.55 billion. Thirty three analysts currently estimate revenues of $2.28 billion for the full year 2010.

Monday, VMW closed at $42.00, up $0.42 or 1.01%, on the the NYSE. In after hours, the stock gained $7.32 or 17.43%, trading at $49.32.

In the past 52 weeks, the stock trended in a broad range of $19.15 - $47.60, with a three-month average volume of 1.47 million shares.

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