VMware Shares Climb After Profit Tops Estimates

VMware Inc., the biggest maker of software that lets computers run different operating systems, rose the most in two months after reporting third-quarter profit that exceeded analysts’ projections.

Shares climbed as much as 9.8 percent, the biggest intraday gain since July 24. VMware was up 7.7 percent at $89.04 at 9:47 a.m. in New York. The stock had dropped 12 percent so far this year yesterday amid concern about slowing sales growth.

Profit before certain items was 84 cents a share, Palo Alto, California-based VMware said a statement yesterday. 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.

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.

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.

Sales Outlook

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.

(Updates shares in second paragraph.)
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