VMware’s Third-Quarter Profit Exceeds Estimates on Renewals

VMware Inc. (VMW), the biggest maker of software that lets computers run different operating systems, reported third-quarter profit that exceeded analysts’ projections as corporate customers renewed licensing deals.

Profit before certain items was 84 cents a share, Palo Alto, California-based VMware said today in a statement. That topped the 82-cent average estimate of analysts, according to data compiled by Bloomberg. Revenue rose 14 percent to $1.29 billion, in line with analysts’ average prediction. The shares jumped as much as 11 percent in extended trading.

VMware, which is majority-owned by EMC Corp., makes virtualization software that lets customers combine multiple applications on a single machine. Sales are rising as more companies re-sign multiyear contracts, Brian Marshall, an analyst at ISI Group who rates VMware a strong buy, wrote in a note to clients last week. VMware also has been expanding into newer areas, such as Web-based cloud software that merges applications stored at a customer’s site with ones hosted in VMware’s own data centers.

“Customers are getting more strategic and they are buying more from us,” Chief Financial Officer Jonathan Chadwick said in an interview.

Army Contract

During the quarter, the company signed its biggest-ever deal, a multiyear contract with the U.S. Army, Chadwick said. Amid concerns that too many customers already own VMware’s basic virtualization software, the company is shifting focus toward selling more of its newer products, with 40 percent of business now coming from these areas, he said.

Third-quarter net income, which included stock-based compensation and acquisition-related costs, rose 66 percent to $261 million, or 60 cents a share, from $157 million, or 36 cents, a year earlier, VMware said.

For the fourth quarter, revenue will be $1.45 billion to $1.48 billion, the company said on a conference call. On average, analysts had projected $1.48 billion. Sales for the year will be $5.18 billion to $5.21 billion, a narrowing of the company’s previous forecast range and in line with analysts’ estimates.

VMware shares rose as high as $91.74 following the report, after gaining 1.5 percent to $82.65 at the close in New York. The stock has dropped 12 percent so far this year amid concern about slowing sales growth.

To contact the reporter on this story: Dina Bass in Seattle at dbass2@bloomberg.net

To contact the editor responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net;

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