VMware Rocks Its Earnings, but Also Confirms 800 Layoffs

NEWS ANALYSIS: Collateral damage is always part of the process in any merger or acquisition, but the sting of such action never lessens.

VMware revealed its Q4 2015 earnings results Jan. 26, and with them came confirmation of an earlier published report that layoffs are indeed in the works. About 800 of its 17,100 jobs are being cut, largely in preparation for the acquisition of EMC, VMware's majority owner, by Dell Inc.

The $67 billion acquisition, the largest in tech history, was announced Oct. 12. It is expected to become finalized later this quarter.

Collateral damage is always part of the process in any merger or acquisition, but the sting of such action never lessens.

The world's largest virtualization software maker confirmed in its routine SEC filing that the job cuts were in the process. Most of the layoffs are in jobs that overlap those already in the Dell domain. For example, one of the positions changed out was VMware CFO Jonathan Chadwick, who is being replaced by CFO Zane Rowe of EMC.

VMware reported Q4 revenue and profit per share that exceeded Wall Street analysts' projections. Revenue in the final fiscal quarter of the calendar year grew by 10 percent year over year to $1.87 billion, resulting in earnings per share of $1.26. Analysts polled by Bloomberg had been expecting $1.85 billion and $1.25 per share.

VMware common stock closed at $49.28 on the Nasdaq chart, up 52 cents (1.07 percent), but it slid in after-hours trading $2.53 to $46.75 (5.13 percent), by 5 p.m. Pacific time.

VMware stockholders apparently haven't been pleased with VMware's role in that acquisition since even before it was announced. On Oct. 7, five days before the Dell deal was announced, VMware's stock was selling for $82. Two weeks later, the price had fallen to $55.

There haven't been any other big slips since, but the price hadn't been under $50 since Feb. 22, 2010, when it closed at $49.51.

The Palo Alto, Calif.-based company reported that its software licensing income rose 11 percent year over year to $825 million. VMware also said that in addition to liquidating "approximately 800 roles" it will take a charge of $55 million to $65 million over the course of 2016.

CEO Pat Gelsinger said on the conference call to analysts that the report represented a "solid finish to 2015. We were especially pleased with the growth across our portfolio of emerging products and businesses, including NSX, End-User Computing and Virtual SAN. All of these businesses demonstrated strong growth in both Q4 and for the full year, underscoring the momentum we expect to continue into 2016."

Looking back at eWEEK's coverage of Dell's pending acquisition of EMC and its vast empire of IT assets, we came across a statement from Michael Dell himself about how he values VMware.

"VMware is a crown jewel of the EMC federation. Our intent is only to continue to help it thrive, innovate and grow, as an independent company with an independent and open ecosystem," Dell wrote in his blog immediately after the acquisition last October.

Wonder if those who receive layoff notices will agree with that statement.

Chris Preimesberger

Chris J. Preimesberger

Chris J. Preimesberger is Editor-in-Chief of eWEEK and responsible for all the publication's coverage. In his 15 years and more than 4,000 articles at eWEEK, he has distinguished himself in reporting...