Osprey Flyer: VMware Reports Record Earnings in Q4 (Financial Charts, Review) *Outlook disappoints* VMW

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VMware reported Q4 2010 financial results on Monday, January 24, 2011

VMware Reports Record Earnings in Q4

VMware (VMW) reported record setting Q4 2010 financial results on Monday, January 24 after the market closed. VMware financial performance charts for Q4 2010 and prior quarters have been posted, along with commentary, on the VMware Financial Performance page. The charts are:

VMware Performance by the Quarters

Earnings per Share (Diluted), Operating Cash Flow per Share

Total Revenues, Operating Income, and Net Income

Gross Margin, Operating Margin, and Net Margin

Return on Assets

Total Revenues and Earnings per Share Growth Rates

Summary Q4 2010 VMware reported record total revenues and net income and overall impressive Q4 2010 financial results. Management outlook for 2011 operating margin, no increase, due to increase in hiring, is a disappointment. Although management outlook is a strong 26%-29% increase in 2011 total revenues, another disappointment is the Q1 2011 management outlook for total revenues ($800M-$820M), which is a decline from the Q4 2010 total revenues of $836M. The only true negative on VMware is the historically low return on assets, although much improved in recent quarters, which continues below 10%.

Income Statement Q4 2010 VMware reported record total revenues of $836M, record net income of $131M, and earnings per share of $0.29. From the prior quarter Q3 2010, total revenues were up +17.00%, net income up +41.70%, and earnings per share up +40.00%. From the prior year Q4 2009, these were up +37.40%, +112.52%, and +100.00%, respectively. For Q4, gross, operating, and net margins were an improved 83.20%, 15.63%, and 14.35%, respectively. Cash flow from operations was a much improved and record $0.95 per share.

Balance Sheet Q4 2010 Total assets increased +12.06% QoQ to a record $6.797B. The capital to assets ratio (total stockholders' equity divided by total assets) dipped to 56.03%, a 4-quarter low but still historically strong. The current ratio (current assets divided by total assets) is a very liquid 63.23% and a 6-quarter high. VMware is very liquid with strong capital. Q4 total deferred revenue increased $355M and +23.54%, which is a huge QoQ increase. However, company guidance for Q1 2011 total revenues is in the $800M - $820M range, a QoQ negative growth rate of -4.27% to -1.87%.

Our Estimate Q4 2010 VMware beat our estimates. "VMware offered guidance for Q4 December 2010 total revenues of $790M to $810M, a QoQ growth rate of +10.6% to +13.4%. For the present, our early estimate of the Q4 EPS is a minimum $0.22 compared to Q3 EPS of $0.20, a +10.0% increase. Disclosure: We have no position, long or short, in VMW."

Our Estimate Q1 2011 VMware offered guidance for Q1 March 2011 total revenues of $800M to $820M, a QoQ negative growth rate of -4.27% to -1.87%. For the present, our early estimate of the Q1 2011 EPS is a minimum $0.25 compared to Q4 2010 EPS of $0.29, a -15.15% decrease.

Disclosure We have no position, long or short, in VMW.

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