Sunday, November 11, 2012

VMware Earnings Review: Performance Sputters Again

VMware reported QE September 2012 financial results on October 23

As noted last quarter, new CEO Pat Gelsinger has a financial performance downtrend to contend with. Gross margin is stable. The performance slowdown is the result of increasing operating expenses and therefore a decreasing operating margin (now 17% down from a peak of just over 20%). Some of this increase in operating expenses is most likely the result of acquisitions. Whether this is a short-term trend or a change in the long-term business model remains to be seen.

QE December 2012 guidance for total revenues is an improved +19% to +22% QoQ and +21% to +22% YoY. However, the 12-quarter YoY average has been +32%. Full 2012 guidance for total revenues is +21% to +22% YoY.

VMware also announced a new CFO, "Jonathan Chadwick, 46, brings deep industry and business leadership experience to VMware. Most recently, he served as corporate vice president of Microsoft and CFO of Skype, following roles as EVP and CFO of McAfee and in a variety of finance leadership positions in over a decade at Cisco Systems. Chadwick will be responsible for leading VMware’s global finance organization and will report to Gelsinger".

Total revenues continue growing solidly year over year and is now +20.7%. However, the trend is downwards and the growth rate has decreased 5 consecutive quarters and is the lowest since the QE 12-31-09 (+18.2%).

This financial performance downtrend has trickled down to net margin and therefore GAAP earnings per share, which has decreased year over year for 2 consecutive quarters, and is now -12.2%. These are the only 2 GAAP EPS YoY decreases since the QE 12-31-09.

“Third quarter results reinforce VMware’s leadership and momentum as cloud emerges as the de facto IT infrastructure standard,” said Pat Gelsinger, chief executive officer, VMware. “Our Software Defined Data Center platform gives customers a clear path to the cloud, and the recently announced VMware vCloud® Suite of virtualized compute, storage, networking and management capabilities demonstrates our unique ability to deliver proven solutions that speed this journey.”

“We delivered a solid quarter despite tough macroeconomic conditions,” said Carl Eschenbach, chief operating officer and co-president, VMware. “The quarter went as expected and we achieved record quarterly results for total revenue and non-GAAP operating income. Fourth quarter revenues are expected to be in the range of $1.26 and $1.29 billion. Annual 2012 revenues are expected to be in the range of $4.572 and $4.602 billion, an increase of 21.4% to 22.2% from 2011. Annual license revenues are expected to grow between 12.8% and 13.8%.”


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