VMW is up $7 in pre-market trading. It far exceeded the analyst estimates for the fourth quarter and upped its guidance for the first quarter.
Company press release
VMware outlook beats estimates, shares climb
Mon Jan 25, 2010 8:20pm EST
* Sales jump as pent-up software demand starts to show up
* Q1 rev forecast $580 mln-600 mln vs Street view $530 mln
* 2010 rev view $2.45 bln-2.55 bln vs Street View $2.28 bln
* Shares rise 18 percent in extended trading (Adds analyst, company comments. Updates shares)
By Jim Finkle
BOSTON, Jan 25 (Reuters) - Software maker VMware Inc (VMW.N) forecast 2010 revenue growth to be far above Wall Street expectations, saying customers were becoming more comfortable about investing in new technologies after a budget crunch last year.
Shares of VMware, which makes software that boosts the efficiency of business computers, jumped 18 percent after the company also reported fourth-quarter results that were well ahead of analysts' forecasts.
VMware projected that revenue could climb between 21 percent and 26 percent this year, after growing just 8 percent in 2009. The software maker, majority-owned by EMC Corp (EMC.N), saw revenue at $2.45 billion to $2.55 billion, above the $2.28 billion average analyst estimate, according to Thomson Reuters I/B/E/S.
"In January 2009 we would be talking to CIOs and they would say, 'I don't even have a budget yet,'" VMware Chief Operating Officer Tod Nielsen said in an interview. "Now it's a much more normal course. People are saying 'Here's my budget. I want to do this."
Business conditions reached an inflection point during the fourth quarter of 2009 as improvement in the economy provided a stronger boost to VMware's earnings than analysts had anticipated.
VMware also said it benefited from a sales promotion that ended Dec. 15, and as customers spent money left in their budgets at the end of the calendar year.
Fourth-quarter profit, excluding items, was 31 cents a share, beating the average analyst forecast of 26 cents. Revenue rose 18 percent to $608 million, sharply above the average analyst forecast of $554 million.
"Wow. We had definitely seen IT spending bounce back sometime in the fourth quarter, but this is well and beyond what anybody was looking for," said Pacific Crest Securities Rob Owens. "This bodes well for earnings in general. I think we are going to see a relatively robust earnings period."
THE OUTLOOK
VMware was one of the fastest-growing technology companies prior to the recession, with revenues doubling each year. That slowed to almost zero growth during the recession, leaving analysts unsure what pace would be normal for the company in a recovery.
The company projected first-quarter revenue to rise 23 percent to 28 percent from last year to between $580 million and $600 million, ahead of the $530 million average analyst forecast.
"They are guiding to approximately 25 percent growth going into a new year. That's incredible. It says a lot about their visibility, their pipeline, the demand for their software," said Jefferies & Co analyst Katherine Egbert.
Other makers of business software also likely had strong quarters, Egbert and Owens said.
Business software manufacturers that have not reported yet include Microsoft Corp (MSFT.O), Symantec Corp (SYMC.O), McAfee Inc (MFE.N), CA Inc (CA.O) and Citrix Systems Inc (CTXS.O).
Palo Alto, California-based VMware's net income fell to $56.4 million, or 14 cents a share, from $111.5 million, or 29 cents, a year earlier, because of higher operating expenses.
The company's shares rose to $49.51 in extended trading after closing at $42 on the New York Stock Exchange. EMC shares rose 4.3 percent to $17.67 after hours, from their close of $16.94. (Reporting by Jim Finkle, editing by Matthew Lewis and Carol Bishopric)
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