UPDATE: VMware 3Q Profit Down 54% On Margins; 4Q View Strong
October 21 2009 - 6:13PM
Dow Jones News
VMware Inc. (VMW) showed some reassuring signs in its
third-quarter earnings Wednesday: Although profit slid 54% on
higher research and marketing costs, revenue beat expectations and
the company said customers were becoming more positive on
spending.
Third-quarter revenue of $490 million cleanly topped Wall
Street's views and the company projected fourth-quarter revenue of
$540 million to $560 million, ahead of the $523 million expected,
according to a Thomson Reuters poll. VMware also said the first
quarter would be "down sequentially," but declined to provide a
range. Analysts expected $513 million.
Shares rose 1.2% to $45.45 in after-hours trading. The stock has
risen by more than three-quarters this year.
Palo Alto, Calif.-based VMware, which is majority owned by EMC
Corp. (EMC) dominates the market in virtualization technology, a
software-based technique for allowing one computer to do the job of
several, which is considered a good way of reducing IT costs.
But in recent quarters, VMware's previously runaway revenue
growth has stalled as corporate customers cut spending in response
to the recession, and amid growing challenges from companies
including Microsoft Corp. (MSFT) and Citrix Systems Inc.
(CTXS).
Speaking on a conference call Wednesday, VMware executives said
that although corporate spending remains tough, there are some
positive signs emerging.
"We're beginning to get better visibility in their business and
it appears more customers are moving forward with their IT
investment plans," Mark Peek, the company's chief financial
officer, said on a conference call. In particular, customers are
showing a renewed appetite for signing longer term bulk licensing
deals than in previous quarters, he said.
During the quarter, VMware acquired software maker SpringSource
in a deal that will help speed development of products in a hot
market for enterprise software.
VMware reported earnings of $38.2 million, or 9 cents a share,
down from $83.3 million, or 21 cents a share, a year ago. Excluding
stock-based compensation and other items, earnings were flat at 24
cents. Analysts expected 20 cents, excluding items.
Revenue rose 3.7% to $489.8 million, down 1% in the U.S. and up
9% internationally. In July, the company said it expected $465
million to $480 million, below Wall Street's expectations.
Revenue from software license deals decreased 16%, while revenue
from services, which include subscriptions, consulting and
information technology support, jumped 33%. VMware's services
segment has picked up a larger share of total revenue in recent
quarters.
Operating margins dropped to 4.7% from 21.4%. Research and
development costs jumped 56%, while sales and marketing costs were
up 10%.
-By Jessica Hodgson and John Kell, Dow Jones Newswires;
415-439-6455; jessica.hodgson@dowjones.com
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