First-quarter revenue will be $1.17 billion to $1.19 billion, Palo Alto, California-based VMware said in a statement yesterday. That fell short of the analysts’ average estimate of $1.25 billion, according to data compiled by Bloomberg. The company will cut 900 jobs, exit some lines of business and consolidate facilities this year, resulting in charges of $90 million to $110 million, according to a filing.
VMware said it’s facing a tougher first half of the year because of a weak economic environment and sluggish federal government demand, which impacted bookings, a measure of future sales, the company said. Additionally, an expected increase in contract renewals won’t occur until later in the year, the company said on a conference call with investors.
“The company’s guidance was clearly disappointing,” said Abhey Lamba, an analyst at Mizuho Securities USA Inc., in a note to clients. “In particular, management’s license growth expectations of 8 percent to 11 percent for the year are materially lower than expectations, as investors expected revenue growth acceleration in 2013.” Lamba rates the shares buy with a $99 price target.
VMware fell as much as 14 percent in extended trading. The shares declined less than 1 percent to $98.32 at yesterday’s close in New York, for a gain of 6.6 percent in the past 12 months.
Head Count Rising
Even with the job cuts, the company is still hiring and plans to end the year with head count up by about 1,000, Chief Executive Officer Pat Gelsinger said on the conference call.
Fourth-quarter profit, excluding some items, was 81 cents a share, exceeding the average estimate of 78 cents, according to data compiled by Bloomberg. Sales rose 22 percent to $1.29 billion, compared with a $1.28 billion average projection.
Net income climbed 2.7 percent to $205.8 million, or 47 cents a share, from $200.4 million, or 46 cents, a year earlier.
The company is majority-owned by EMC Corp.
VMware, already the biggest provider of virtualization software, is signing more agreements with smaller businesses because many large corporations already have its software, said Rick Sherlund, an analyst at Nomura Holdings Inc. Competition from Microsoft Corp. and Oracle Corp. also may have forced VMware to reduce prices, he said.
“Growth has been slowing,” Sherlund wrote in a research report. “Microsoft is having some impact on pricing, more so than any significant shift in market share so far.”
Bloomberg
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