Bloomberg News

VMware Says 2012 May Be ‘Difficult’ Amid Reduced Spending

October 17, 2011

(Updates with company’s forecast in first paragraph.)

Oct. 17 (Bloomberg) -- VMware Inc., the biggest maker of programs that let computers run multiple operating systems, said it’s bracing for a “difficult” 2012 because corporations may slow spending on technology, including the company’s software.

On a conference call today to discuss quarterly earnings, Chief Financial Officer Mark Peek said next year will be “challenging.” Net income in the third quarter more than doubled to $177.5 million, or 41 cents a share, from $84.6 million, or 20 cents, VMware said. Excluding some costs, profit was 53 cents, compared with the 49-cent average estimate of analysts surveyed by Bloomberg.

VMware, based in Palo Alto, California, has benefited as companies invest in data centers to run software in the so- called cloud, or stored on the Internet instead of their own server computers. Still, Peek said information technology spending is likely to weaken next year, and VMware’s results will be compared against strong numbers from 2011. The company also plans to invest heavily.

“It will be a year of challenging revenue comparables and considerable investments,” Peek said on the conference call.

Sales in the first quarter will be $1 billion to $1.03 billion, the company said on the call. Analysts had expected sales of $1.03 billion.

VMware, majority-owned by EMC Corp., slipped in extended trading after the report. Earlier, the stock declined 3.8 percent to $89.52 at the close in New York. The shares are little changed this year.

Unearned Revenue

Sales in the recent period rose 32 percent to $941.9 million, while unearned revenue, a measure of future business, was $2.2 billion -- almost $100 million above the estimate of Robert Breza, an analyst at RBC Capital Markets.

“The overall numbers were good,” said Breza, who is based in Minneapolis and rates VMware shares “outperform.” “The most impressive number is when you add in the total unearned revenue. It’s a pretty strong showing that should give people confidence going forward.”

The company signed large contracts, renewed existing ones and saw greater interest in new products such as vSphere 5, which improves server performance, Adam Holt, an analyst at Morgan Stanley, wrote in a note today.

Fourth-quarter sales will be $1.03 billion to $1.06 billion, VMware said. Breza said some shareholders may be concerned that the company is being too conservative with its forecast. Though the range is in line with or above the average analyst estimate of about $1.03 billion, some investors may have wanted the company to issue a higher projection, he said.

Breza said the forecast aptly reflects slow economic growth.

“Right now, put a number out there you are going to beat,” he said. “Don’t put out any stretch goals.”

--Editors: Jillian Ward, Tom Giles

To contact the reporter on this story: Dina Bass in Seattle at

To contact the editor responsible for this story: Tom Giles at

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