VMware Shares Reach Six-Month High as Earnings Top Estimates

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VMware Inc. touched a six-month high as it reported profit that topped analysts’ estimates, even as the software maker posted slower revenue growth and reduced sales forecasts because of currency fluctuations.

First-quarter earnings, excluding some costs, was 86 cents a share on sales of $1.51 billion, VMware said in a statement Tuesday. Analysts had projected 84 cents and revenue of $1.5 billion, according to data compiled by Bloomberg.

The software maker’s shares rose as much as 5.1 percent to $89.75 by 9:40 a.m. New York time on Wednesday.

VMware, which sells virtualization software used by companies to save money by consolidating different applications, has boosted contract renewals and encouraged existing customers to buy newer products such as networking and cloud software. The shift to selling Internet-based services lowers revenue because a smaller percentage of the sale is recognized initially. Elliott Management Corp. is pressing majority owner EMC Corp. to spin off faster-growing VMware, saying the parent is undervalued and that there’s too much overlap between the companies.

“It sounded good from a new product momentum point of view. Clearly momentum is there, but they are still smaller parts of the revenue base,” said Abhey Lamba, an analyst at Mizuho Securities USA Inc. who has a buy rating on the stock. “If you look at consensus, the beat was on professional services.”

First-quarter net income fell to $196 million, or 45 cents a share, from $199 million, or 46 cents, a year earlier. Revenue rose 11 percent from $1.36 billion a year earlier, the slowest growth in seven quarters.

Revenue Guidance

The Palo Alto, California-based company forecast sales of $6.57 billion to $6.69 billion for 2014, compared with its previous range of $6.64 billion to $6.76 billion.

“There has been no change to revenue guidance for 2015 except to adjust for the increased impact of currency,” VMware Chief Financial Officer Jonathan Chadwick said in a call with analysts. He made similar comments about the other parts of the forecast. The U.S. dollar is now stronger than when VMware last made projections in January, while the euro has weakened. That will hurt VMware sales by 3 percent instead of the 2 percent that the company forecast in January.

“We are seeing some historic movements, in the euro in particular,” Chadwick said in an interview.

Earnings, excluding some items, in the current quarter, will range from 90 cents to 92 cents, while sales will be $1.58 billion to $1.60 billion. Analysts polled by Bloomberg had projected profit of 92 cents on sales of $1.60 billion.

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