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VMware Profit Tops Estimates as Clients Add Server Software

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Jan. 23 (Bloomberg) -- VMware Inc., the biggest maker of software that lets computers run multiple operating systems, reported sales and profit that topped estimates as corporations bought more programs to make servers more efficient.

Fourth-quarter profit before certain costs was 62 cents a share, VMware said in a statement today. That beat the 60-cent average estimate of analysts surveyed by Bloomberg. Sales rose 27 percent to $1.06 billion, above the $1.05 billion average prediction. First-quarter revenue will be as much as $1.04 billion, compared with analyst projections for $1.02 billion. The shares jumped as much as 5.5 percent in extended trading.

Customers are investing in VMware’s software as they seek to run more programs on a single computer and set up servers and storage devices to run corporate programs in the so-called cloud. The results dispelled concern among investors that growth for VMware’s virtualization software was slowing and that economic concerns might hamper corporate purchases, said Brian Marshall, an analyst at ISI Group.

“These are very solid results,” said Marshall, who is based in San Francisco and recommends buying VMware shares. “Server virtualization is not dead. Growth is alive and well.”

VMware, majority-owned by EMC Corp., rose as high as $90.75 after the report. Earlier, the stock declined 2.4 percent to $86 at the close in New York. The shares fell 6.4 percent last year.

New Products

VMware, based in Palo Alto, California, had said in October some customers might slow spending on technology, leading it to brace for a “challenging” 2012.

Still, the company is benefiting from sales of new products, such as vSphere5 software, and contract renewals from large businesses, Adam Holt, an analyst at Morgan Stanley, wrote in a note today.

Net income in the fourth quarter rose to $200.4 million, or 46 cents a share, from $119.9 million, or 28 cents, a year earlier, VMware said.

VMware Chief Financial Officer Mark Peek said the company found corporate customers willing to spend their remaining technology budgets in the fourth quarter, even as the credit crisis in Europe made some businesses concerned about demand for the current year.

“We had some concerns about the macroeconomic environment, particularly in Europe, and whether or not customers would go ahead and do the typical fourth-quarter budget flush,” he said in an interview. “We believe they did.”

For the current year, customers are cautious but continuing to spend, Peek said. The company’s forecast assumes conditions don’t deteriorate from the second half of 2011, he said.

Sales for the full year will be $4.48 billion to $4.6 billion, the company said. Analysts on average had been predicting $4.48 billion.

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

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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