VMware Inc. (VMW:US), the biggest maker of software that lets computers run multiple operating systems, gave a forecast for second-quarter sales that fell short of analysts’ projections as business customers trim spending.
Revenue will be $1.21 billion to $1.24 billion, the Palo Alto, California-based company said yesterday in a statement. Analysts on average were estimating (VMW:US) sales of $1.25 billion, according to data compiled by Bloomberg. The shares fell as much as 6.9 percent, the biggest intraday drop in almost three months.
VMware’s sales growth has been under pressure as U.S. companies and federal agencies are reducing technology budgets. In response, the company said in January it would cut 900 jobs and exit some businesses. VMware remains “cautious” about demand and the economy, Chief Financial Officer Jonathan Chadwick told analysts on a conference call.
“Revenue guidance for the second quarter is below consensus,” said Abhey Lamba, an analyst at Mizuho Securities USA Inc. The company repeated its March revenue forecast for 2013, which indicates VMware expects more contracts to come in at the end of the year, he said. “Anytime the forecast is for the year to be more back-end loaded, it increases the risk factor.”
The shares (VMW:US) declined 5 percent to $71.91 at 10:07 a.m. New York time. The stock had dropped 30 percent in the past year through yesterday.
First-quarter net income fell 9.3 percent to $173.6 million, or 40 cents a share, from $191.4 million, or 44 cents, a year earlier, the company said.
Profit excluding certain items was 74 cents a share, VMware said. Analysts on average estimated profit of 70 cents, according to data compiled by Bloomberg. Sales rose 13 percent to $1.19 billion, compared with a $1.18 billion average prediction.
Investors in VMware, which is majority-owned by EMC Corp. (EMC:US), have been concerned about slowing growth since the software maker reported fourth-quarter results on Jan. 28. The company’s forecast at the time sent the stock to its steepest one-day drop in four years.
At an analyst meeting in March, Chief Executive Officer Pat Gelsinger trimmed VMWare’s projection for 2013 sales to $5.12 billion to $5.24 billion, while saying sales growth would pick up in 2014. Gelsinger took over the CEO post in September.
The company was once known for issuing disappointing forecasts, only to sail past them when reporting results (VMW:US). Now, even meeting the revenue forecast for the year will require a significant jump in sales of software licenses in the second half, said Lamba.
“In this environment, how do they expect license revenue growth to accelerate like that?” said Lamba.
To contact the reporter on this story: Dina Bass in Seattle at firstname.lastname@example.org
To contact the editor responsible for this story: Tom Giles at