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VMware First-Quarter Sales Gain 14% as Margins Narrow

VMware Inc. (VMW), the biggest maker of software that lets computers run different operating systems, said first-quarter sales rose 14 percent as more customers renewed contracts on demand for newer products.

Sales climbed to $1.36 billion from $1.19 billion a year earlier, VMware said in a statement yesterday. Profit before certain items was 80 cents a share. Analysts had projected profit of 79 cents and sales of $1.35 billion, according to the average estimate compiled by Bloomberg.

Businesses have been renewing software licensing agreements and adding contracts for management tools, Abhey Lamba, an analyst at Mizuho Securities USA Inc. with a buy rating on the stock, wrote in a note. VMware, which is majority-owned by EMC Corp. (EMC), makes virtualization software that lets customers save money by combining multiple applications on a single machine.

Net income rose to $199 million, up 15 percent from $173 million a year ago.

For the second quarter, VMware forecast sales of $1.425 billion to $1.465 billion, in line with analysts’ average estimate of $1.44 billion, according to data compiled by Bloomberg.

Slimmer Margins

The Palo Alto, California-based company also said that excluding certain costs, operating margin will be 29 percent to 29.5 percent for the second quarter. That’s down from 31 percent in the first quarter and 35.6 percent in the last quarter of 2013.

The shares slid as much as 11 percent to $93.80 and traded at $95.92 at 10:30 a.m. in New York, after VMware projected narrowing margins. The stock had gained 17 percent for the year as of yesterday’s close.

VMware has been purchasing companies to diversify its revenue. VMware acquired AirWatch LLC earlier this year for $1.54 billion to bolster its line of management programs for mobile devices. The products are aimed at corporations seeking ways to keep information secure as more employees use handheld gadgets for work. In 2012, VMware paid $1.26 billion for Nicira Inc. to gain software that helps networks run more efficiently.

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

To contact the editors responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net Jillian Ward

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