VMW reports after the close. A preview:
VMware, With EMC In Control, May Post Lower Q3 EPS
By PETE BARLAS, INVESTOR'S BUSINESS DAILY
Posted 10/20/2014 12:13 PM ET
VMware is expected to post a penny decline in year-over-year EPS when it reports Q3 earnings after the close Tuesday, with parent EMC resisting some calls that it spin off the virtualization company in keeping with recent moves by Hewlett-Packard and eBay.
The No. 1 maker of virtualization software continues to push into new areas, including Software-Defined Networking, hybrid cloud services and end-user computing, to boost its revenue growth.
Last month, VMware (NYSE: VMW) became the focus of news reports when storage giant EMC (NYSE: EMC) resisted calls from activist shareholders that it spin off the company. EMC owns 80% of the company. The split-off calls came as Hewlett-Packard (NYSE: HPQ) announced that it would split into separate enterprise and PC companies, and as eBay (NASDAQ: EBAY) said that it would spin off its PayPal payments unit into an independent, publicly traded company.
The EMC-VMware talk has quieted lately, though, and analysts in pre-earnings reports didn't broach the topic.
Michael Turits, an analyst for Raymond James, writes that there are reasons to be optimistic about VMware even though the company slightly reduced its revenue estimate for next year at its analyst day meeting in August. Turits rates VMware stock a strong buy.
"U.S. enterprise channel checks this quarter suggested roughly in-line business — if not as robust as Q2," Turits wrote. "Despite a stepdown of 2015 revenue growth expectations at August's analyst day, we continue to be positive on VMware given confidence in the company's private cloud opportunity, formidable end-user computing story against competitor Citrix Systems (NASDAQ: CTXS), stability in the core vSphere (server virtualization) business and long-term opportunities with the NSX (network virtualization) platform, vSAN (software defined storage) and vCloud Air Service."
In his research note, J. Derrick Wood, an analyst for Susquehanna Financial Group, says that VMware remains a work in progress as it works through issues including its acquisition this year of AirWatch, a mobile management services company, for $1.54 billion. He rates VMware stock neutral.
"Our checks suggest a relatively in-line quarter, at least on the commercial side," he wrote. "We continue to hear of better growth trends from its Horizon (desktop virtualization) and vSAN products, but weaker demand trends for vCloud Suite and a slowdown in activity with AirWatch.
"Overall, we think VMware still faces headwinds with respect to market saturation, tight budgets for IT-oriented projects, a changing return on investment profile with newer products, and emerging threats from Docker/containers (to VMware's virtualization software business)."
Analysts polled by Thomson and Reuters expect VMware to report Q3 earnings per share minus items of 83 cents, down from 84 cents in the year-earlier period. Revenue is expected to rise 16.5% to $1.5 billion.
For the current quarter, analysts expect an EPS of $1.07, up 5.9%. Revenue is expected to increase 15.3% to $1.71 billion.
VMware stock was down 1% in midday trading in the stock market today, near 88, but earlier touched a 10-month low of 86.01.
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