Friday, April 27, 2012

VMware Earnings Dip, Growth Slows


VMware reported Q1 2012 financial results on Wednesday, April 18.

I'm mildly concerned with VMware's Q1 2012 financial results. This is the first quarter that total revenues, net income, and earnings per share dipped QoQ since the QE June 2009. Total revenues had increased every quarter since, until now. Deferred revenues growth slowed considerably. Granted, Q1 is not a strong quarter for VMware on the annual cycle and the revenues dip was small (-0.48%), but the streak is broken. I'm probably being too tough. CFO Mark Peek even raised the annual 2012 revenues guidance.

VMW is doing very well, but I'm starting to see a slowdown in growth for YoY total revenues, net income, and earnings per share. Current performance is good, the margins held, and an acceleration may occur later in 2012. Having been a VMW bull for a few years, I'm just not as gung-ho after this report. That doesn't mean I wouldn't trade VMW for an earnings pop in the future and probably will. CEO Paul Maritz no doubt has some record financial performance on deck later in 2012.

I missed my GAAP earnings per share estimate of $0.51 to $0.56. Actual was $0.44 EPS. This was mostly attributable to the unexpected dip in total revenues and an increase in income taxes. In the past I was underestimating GAAP EPS. So maybe my overestimation is some of the reason for my aforementioned concern.

VMware Income Statement Q1 2012 VMware reported total revenues of $1.06 billion, net income of $191 million, and earnings per share of $0.44. From the prior quarter Q4 2011, these were -0.48%, -4.49%, and -4.35%. From the prior year Q1 2011, these were +25.06%, +52.16%, and +51.72%, respectively. Gross margin, operating, and net margins were stable at 83.80%, 20.58%, 18.14%, respectively. Cash flow from operations of $1.33 per share is another all-time high. The operating expense ratio 63% is below the historical average.

VMware Balance Sheet Q1 2012 Total assets increased to a record $9.13 billion. The capital ratio increased to 56.94%. The current ratio increased to 67.23%. VMware is liquid with adequate capital. Total deferred revenue, current and noncurrent, increased +3.68% QoQ, the smallest increase since the QE September 2010. Return on assets increased to +9.82%.

VMware Outlook Q2 2012 "Second quarter 2012 revenues are expected to be in the range of $1.10 and $1.12 billion. Annual 2012 revenues are expected to be in the range of $4.525 and $4.625 billion, an increase of 20% to 23% from 2011, and annual license revenues are expected to grow between 12% and 16%."









VMware announced a management team change on April 11, 2012: * Carl Eschenbach has been promoted to Chief Operating Officer and Co-President. Eschenbach previously served as VMware's Co-President, Customer Operations. * Raghu Raghuram has been promoted to Executive Vice President of Cloud Infrastructure and Management. Raghuram previously served as VMware's General Manager and Senior Vice President. * Mark Peek, VMware's Chief Financial Officer and Co-President, Business Operations, has decided to take a new opportunity as Chief Financial Officer of Workday, where he currently serves as a member of their Board of Directors. Peek will stay with VMware until June 1, 2012.

Tuesday, April 24, 2012

Qualcomm Earnings Soar with Caveats, Guidance Creates Concern


Qualcomm reported calendar Q1 2012 financial results on Wednesday, April 18.

Qualcomm reported a second consecutive quarter of record financial results with caveats. A $761 million gain on sale from discontinued operations, $0.44 GAAP EPS, was recorded in non-operating income. This caused the record net income and earnings per share, not but not operating income. Full-year EPS guidance was not raised at the top end and neither was total revenues guidance. That's how high expectations are for Qualcomm. CEO Paul Jacobs doesn't raise guidance, disappointment sets in.

There's more. Total revenues reached an all-time high, but operating income slightly decreased on a lower gross margin for equipment & services plus an increase in operating expenses. Net income and earnings per share nonetheless reached an all-time high boosted by the gain on sale from discontinued operations. 

Qualcomm revised its estimate of FY 2012 GAAP EPS to $3.41 to $3.56 from $3.36 to $3.56, including the $0.44 gain on sale of discontinued operations. FY 2011 GAAP EPS was $2.53. That's a +35% to +41% increase in annual EPS. Total revenues guidance remains $18.7 billion to $19.7 billion. The FY ends with the QE September.

However, excluding the one-time GAAP gain focuses more on the core business. Then the FY 2012 GAAP EPS increase over FY 2011 GAAP EPS is a smaller +15% to +19%. This is solid, but does not sustain the short-term spike or high expectations. That leaves upside surprises and subsequent higher earnings guidance to push the growth curve steeper. Some investors are questioning this hope.

Qualcomm Income Statement Calendar Q1 2012 Qualcomm reported record total revenues of $4.94 billion, record net income of $2.23 billion, and record earnings per share of $1.28. From the prior calendar quarter Q4 2011, these were +6%, +59%, and +58%, respectively. From the prior year calendar Q1 2011, these were +28%, +123%, and +117%, respectively. Gross margin on equipment & sales dropped to a multi-year low of 43.16%. Operating margin decreased both QoQ and YoY to 30.63%. Net margin soared QoQ and YoY from the non-operating gain to 45.11%. The operating expense ratio increased to 69.37%, which is just below the historical average.

Qualcomm Balance Sheet Calendar Q1 2012 Qualcomm continues incredibly liquid and well capitalized. Total assets reached an all-time high of $41.53 billion, up +10% QoQ. Qualcomm has $15.08 billion in short-term cash, cash equivalents, and marketable securities. Add noncurrent marketable securities and total reserves are $26.57 billion. Capital to assets reached a multi-year, if not all-time high of 76.74%. Return on assets spiked to +15.51% which is a multi-year, if not all-time, high.

Qualcomm Calendar Q2 2012 Business Outlook • GAAP & Non-GAAP Revenues: $4.45B - $4.85B • GAAP EPS: $0.67 - $0.73 • Non-GAAP EPS: $0.83 - $0.89









Monday, April 23, 2012

IBM Earnings Take Annual Q1 Dip, Raises Outlook


IBM reported Q1 2012 financial results on Tuesday, April 17.

IBM survived the annual Q1 headwind and a significant drop in earnings per share QoQ of -44% to $2.61 GAAP. The YoY increase was +13%. CFO Mark Loughridge stated growth will be skewed towards the second half of 2012. IBM raised guidance on the full-year 2012 GAAP EPS to $14.27+ from $14.16+. The Non-GAAP outlook was increased to $15.00+ from $14.85+.

IBM posted a record full-year 2011 GAAP earnings per share of $13.06. That's a +9.26% annual EPS increase projected for 2012. Later quarters should reflect an improving financial performance.

New CEO Ginni Rometty will have to wait until later in 2012 to top the stellar Q4 2011 financial results. Total assets dipped to $115.35 billion and continues behind #1 Apple and #2 HP but ahead of #4 Microsoft. These are the exclusive members of the Big Tech $100 Billion Club.

IBM has a large, embedded product financing operation which results in a lower return on assets (+14.13%) than other technology companies. Financial position continues as acceptable, with adequate capital, moderate debt, and sufficient liquidity.

IBM Income Statement Q1 2012 IBM reported total revenues of $24.67 billion, net income of $3.07 billion, and earnings per share of $2.61. From the prior quarter Q4 2011, these were -16%, -44%, and -44%, respectively. From the prior year Q1 2011, these were +0.27%, +7%, and +13%, respectively. Gross margin, operating margin, and net margin dipped QoQ but increased YoY. Cash flow from operations of $3.65 also decreased QoQ but increased YoY. The operating expense ratio of 29.31% increased QoQ and YoY to an 8-quarter high on lower revenues but stable expenses.

IBM Balance Sheet Q1 2012 Total assets dipped from the prior quarter record of $116.43 billion to $115.35 billion. The capital to assets ratio rebounded to 18.02% from a 9-quarter low of 17.38%. The current ratio of 42.35% is about the historical average. The return on assets of +14.13% is a multi-year high. Total debt at 27.79% of total assets is above the historical average.











Saturday, April 21, 2012

Intel Net Income Falls to 7-Quarter Low, Forecasts Rebound


Intel reported Q1 2012 financial results on Tuesday, April 17.

Intel has encountered a tough struggle to transition, to "refresh" its product line. The Microsoft desktop days are waning, just as the IBM mainframe days did. Intel was king of the desktop processing architecture. The world is going mobile and Intel is scrambling to regain the leading edge. Look at the charts below, the story, and draw your own conclusions.

Non-GAAP Q1 earnings per share dipped, but beat expectations, as previewed. However, the $0.56 "beat" was a 5-quarter low. The problem is GAAP EPS fell to a 6-quarter low, revenues a 4-quarter low, and net income a 7-quarter low. This hardly inspires confidence, even though Q1 is typically weak in the annual cycle. In fact, every major metric dropped. Is the drop cyclical or more fundamental?

CEO Paul Otellini knows the score and promised better days ahead, "In the second quarter we’ll see the first Intel-based smartphones in the market, ship products based on 22nm tri-gate technology in high volume, and accelerate the ramp of our best server product ever, providing a tremendous foundation for growth in 2012 and beyond". That left CFO Stacy Smith to do the explaining, "Similar to the fourth quarter our business was negatively impacted by hard drive shortages and the resulting additional reduction of inventories across the supply chain".

I'm not excluding Intel from the future, their vast resources are aimed squarely ahead. They are at the cusp of their mobile market launch plus expect more penetration into data centers. Next Q2 guidance is $13.6 billion, plus or minus $500 million. That would be the second or third highest revenues on record and a rebound QoQ and YoY. So, according to Intel, the bottom is in.













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