Bloomberg News

VMware’s Fourth-Quarter Sales Gain 15%; Margin Seen Narrowing

January 29, 2014

VMware Inc. (VMW:US), the biggest maker of software that lets computers run different operating systems, said fourth-quarter revenue rose 15 percent on corporate demand for its newer products.

Sales climbed to $1.48 billion, in line with a preliminary report last week, from $1.29 billion a year earlier, VMware said yesterday in a statement. Profit before certain items was $1.01 a share, in line with the $1 average estimate (VMW:US) of analysts, according to data compiled by Bloomberg.

VMware, majority-owned by EMC Corp. (EMC:US), makes virtualization software that lets customers combine multiple applications on a single machine. The company has been benefiting as businesses renew contracts and sign up for new software tools. Even as sales increased, license bookings growth slowed in the fourth quarter from the prior period, and VMware said operating margin in the first and second quarters will narrow.

Excluding certain costs, operating margin will be about 31 percent in the first quarter, down from 35.6 percent in the last quarter of 2013, and will be 1.5 to 2 percentage points lower in the second quarter than in the prior period, VMware said in a slide presentation.

VMware shares (VMW:US) slipped to $93.40 in extended trading following the earnings report and conference call. The stock had gained 2 percent to $94.94 at yesterday’s close in New York before the report, and have risen 5.8 percent so far this year.

Mobile Management

The company last week agreed to acquire AirWatch LLC to bolster its line of management programs for mobile devices, aimed at corporations seeking ways to keep information secure as more employees use handheld gadgets for work. While buying AirWatch will cut into profit initially, it will ultimately help VMware drive growth, and will speed up the adoption of mobile computing among corporations, wrote Abhey Lamba, a New York-based analyst at Mizuho Securities USA Inc., in a note after the purchase was announced. He rates the shares a buy.

VMware signed some of its largest contracts in 2013 because customers wanted access to its new products, Chief Financial Officer Jonathan Chadwick said in a phone interview.

“That newer product is driving an upsale of all of our products, driving and pulling along some of our existing parts of our core portfolio,” he said.

The company signed contracts with three of the world’s top five financial institutions, Chadwick said.

The Palo Alto, California-based company has also expanded into cloud-based software. Pivotal, a spinoff from VMware and EMC, provides a platform for developers who want to build applications that can migrate between an organization’s own computers and servers rented from other companies.

Net income in the fourth quarter rose 63 percent to $335 million, or 77 cents a share, from $206 million, or 47 cents, a year earlier, VMware said.

First-quarter revenue will be $1.33 billion to $1.37 billion, and sales will be $5.94 billion to $6.1 billion for 2014, the company said.

To contact the reporter on this story: Gerrit De Vynck in Toronto at gdevynck@bloomberg.net

To contact the editor responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net


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Companies Mentioned

  • VMW
    (VMware Inc)
    • $83.84 USD
    • 1.31
    • 1.56%
  • EMC
    (EMC Corp/MA)
    • $28.17 USD
    • 0.47
    • 1.67%
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