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VMware Says Newer Products Selling Well, But Weak Guidance Spooks Investors In Q4 Earnings

VMware said it beat Wall Street’s profit and revenue estimates during its fiscal fourth quarter earnings call Tuesday, as executives said growth in newer products is offsetting slowing sales of its vSphere server virtualization cash cow.
For the quarter ended Dec. 31, VMware saw net income grow more than 14 percent year over year, to $373 million, or 88 cents per share. Non-GAAP earnings came in at $1.26 per share.
VMware’s overall revenue rose 10 percent, to $1.87 billion, during the quarter. Wall Street analysts were expecting $1.25 per share and revenue of $1.85 billion.
For its fiscal 2015, VMware’s total revenue was $6.57 billion, up 9 percent compared with the year before. Net income was $997 million, or $2.34 per diluted share, up more than 11 percent from fiscal 2014.
Despite the earnings beat, ongoing uncertainty about the impact of Dell’s $67 billion bid to acquire VMware parent EMC, combined with fiscal 2016 guidance that fell short of Wall Street’s expectations, continued to weigh on the Palo Alto, Calif.-based virtualization vendor’s shares, which fell more than 5 percent in after-hours trading.
For its fiscal 2016, VMware is expecting revenue between $6.8 billion and $6.9 billion, and net income of $4.16 per share. Wall Street analysts were expecting revenue of $7.2 billion and earnings of $4.20 per share.
VMware has seen its shares fall more than 40 percent since reports of the Dell-EMC deal first surfaced in early October. EMC shares have fallen around 15 percent since then.
On the call, VMware revealed that it’s laying off about 800 employees, most of them in its vCloud Air hybrid cloud unit, and that it won’t be making additional capital expenditure investments in the service. VMware said the layoffs are expected to cost between $55 million and $65 million during the first half of fiscal 2016.
VMware also said COO and CFO Jonathan Chadwick, who joined the vendor in 2012, will be leaving the company.
Zane Rowe, who has been CFO of EMC since October 2014, will be taking over the CFO role at VMware on March 1, CEO Pat Gelsinger said on the earnings call.
Gelsinger said vCloud Air will now have a more “narrow” focus in the future as the vendor looks to develop “specialized cloud and software services that are unique and distinctive to VMware.”
As for vSphere, Gelsinger and Eschenbach acknowledged that the trusty old cash cow has reached maturity, but said VMware’s newer products are making up for the slowdown.
“We’re seeing strong growth across the full portfolio of emerging products,” Gelsinger said on the call. In 2016, “the effects of the new products will begin to outweigh the decline in our compute products.”

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