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VMware forecasts weak Q4 revenue

By Reuters
US, 22 Oct 2014

Software maker VMware forecast current-quarter revenue largely below Wall Street's estimates due to a delay in the closing of a large US government deal and lower bookings in Germany, Russia and Japan in the third quarter.

The company's shares fell as much as 6% in after-market trade on Tuesday.

"We were tracking a rather large federal (enterprise licence agreement) to coincide with government's year-end and this opportunity did not close in the quarter," COO Carl Eschenbach said during a post-earnings call.

VMware, which activist investor Elliott Management wants separated from parent EMC, makes software that creates a sort of virtual machine acting like a real computer within an operating system, helping to cut IT costs.

The company forecast revenue of $1.67 to $1.71 billion for the fourth quarter ending 30 December. Analysts on average were expecting revenue of $1.71 billion, according to Thomson Reuters I/B/E/S.

"Overall, the outlook was respectable for 4Q although larger deal softness will hurt cash flow going forward," FBR Capital Markets analyst Daniel Ives told Reuters.

"VMware continues to be a mixed execution story where the market opportunity remains strong although getting customers to sign on the dotted line is the focus of the Street."

However, the company's earnings in the three months ended 30 September were better than expected, bucking the trend of weak results from other software makers such as IBM and SAP.

Excluding items, VMware earned 87 cents per share, above the average analysts' estimate of 83 cents per share, according to Thomson Reuters I/B/E/S.

Total revenue rose 18% to $1.52 billion, above the average estimate of $1.50 billion.

Licence revenue rose 13%. Long-term licence agreements, including maintenance and support, make up more than 40% of VMware's revenue.

VMware's net income fell 26% to $194 million due to the impact of its $1.54 billion acquisition of mobile device management software maker AirWatch earlier this year.

Elliott Management has urged data storage products maker EMC, which holds an 80% stake in VMware, to sell the unit or pursue other merger opportunities. EMC has said it has no plans to give up its stake in VMware.

VMware stock was down 1.6% at $86.79 at 6:35pm ET. Up to Tuesday's close, the stock had fallen 1.7% this year.

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