VMware Reports 46% Q3 Revenue Increase, but Stock Buyers Unimpressed

VMware reported another highly profitable financial quarter after the New York Stock Exchange bell Oct. 18, and even though its results exceeded Wall Street expectations, its stock price took a sharp 6.6 percent hit in after-hours trading.
VMware was selling for just under $73 at 5:30 p.m. EDT Oct. 18, down from $78.35 at the 4 p.m. closing.
The Palo Alto, Calif.-based virtualization software company reported net income of $85 million, or 20 cents a share. On a non-GAAP basis, VMware reported earnings of $165 million, or 39 cents a share. Revenue for the third quarter was $714 million, up a solid 46 percent from a year ago.
Wall Street analysts had been expecting VMware to show earnings of 35 cents a share on revenue of $698 million.
There is no question that demand for virtualization software, both in the data center and on the desktop, continues to ramp up. The latest market numbers indicate that VMware has its software present in just under 90 percent of midrange and large enterprise data centers.
“VMware’s third-quarter results were driven by strong demand across products and regions, led by the U.S. federal sector,” Mark Peek, VMware’s chief financial officer, said on the conference call for analysts, stockholders and journalists. “For the fourth quarter, we expect total revenues to be within a range of $790 and $810 million [from $714 million in Q3], an increase of 30 percent to 33 percent from 2009.”
The quarter’s performance reinforces VMware’s contention that it is on the right path to help customers navigate the changing IT landscape, CEO and President Paul Maritz said.
“With virtualization as a central technology in cloud computing, VMware will continue to invest to deliver a broadening set of IT-as-a-service solutions across infrastructure, application platforms and end-user computing,” Maritz said.
The company also raised its outlook for the fourth quarter. VMware changed its guidance in the last quarterly report on July 20, saying that in the third quarter it expects total revenues to be between $680 million and $705 million. For the full year, it raised its revenue outlook to between $2.73 billion and $2.8 billion.
Earlier the company had predicted annual revenue between $2.63 billion and $2.73 billion.