Monday, July 18, 2011

VMware, Inc. (NYSE: VMW): Q2 Earnings Preview 2011

VMware, Inc. (NYSE: VMW), the world's biggest maker of virtualization software, is scheduled to release its second-quarter earnings before the opening bell on Tuesday, July 19, 2011. Analysts, on average, expect the company to report earnings of 42 cents per share on revenue of $815.35 million. In the year ago quarter, the company reported earnings of 32 cents per share on revenue of $633.5 million.

VMware, Inc. provides virtualization infrastructure software solutions and related support and services primarily in the United States. The Company’s suite of virtualization solutions addresses a range of information technology (IT) problems that include cost and operational inefficiencies, business continuity, software lifecycle management and desktop management. VMware, like many software companies, generates revenue primarily by selling new software licenses to its customers. When the license period expires, customers can sign up for maintenance and service contracts at a lower fee.

In the preceding first quarter, the Palo Alto, California-based company's net income was $126 million, or 29 cents per share, compared to $78.4 million, or 19 cents per share, in the year-earlier quarter. On an adjusted basis, the company earned 48 cents per share. Revenue surged 33% to $843.7 million from $815.35 million. Analysts, on average, expected the company to report earnings of 44 cents per share on revenue of $803.58 million. 

At its last earnings call in April, the company said that it expects revenue in the range of $860 to $880 million, a year-over-year increase of 28% to 31%. Non-GAAP operating margin for the second quarter is expected to be in the range of 28% to 29%.

VMware also lifted its fiscal 2011 revenue outlook. The company said that it now expects revenues of $3.55 billion to $3.65 billion, an increase of 24% to 28% compared to 2010. Previously, the company had projected revenues in the range of $3.45 billion to $3.55 billion. The company expects its non-GAAP operating margin for 2011 to expand slightly from 2010. Non-GAAP operating margin for the full-year 2011 is expected to range from 28.5% to 29.5%.

The company is benefiting from improving demand, customer wins and geographical expansion.VMware has a strong product pipeline and loyal customer base that will boost its profitability in the long term. The company’s virtualization platform – vSphere – addresses a range of information technology problems that include cost and operational inefficiencies, business continuity, software lifecycle management and desktop management. VMware works closely with over 900 technology partners, including server, microprocessor, storage, networking and software vendors.VMware competes with Microsoft (NASDAQ: MSFT) and Citrix (NASDAQ: CTXS) in the virtualization market, which it leads with around 45% share globally. vSphere allows companies to increase the utilization of their servers by allocating server resources to software applications independent of the underlying operating system required to execute the application. vSphere also makes it easier for IT managers to better manage various internal or external "clouds" or groups of virtualized server resources. Looking ahead, the company will focus on hybrid cloud opportunities, which blends private cloud infrastructure with public cloud services.  VMware is well hedged against potential revenue disruptions in the U.S. as it generates approximately half of its revenue from its international customers.

During the quarter in review, VMware unveiled its latest offering in the application platform space with vFabric5. The platform, vFabric5 is set to redefine cloud architectures by providing a modern programming model coupled with next-generation platform services.In May, the company acquired Shavlik Technologies to further bolster its position in the cloud market. The Shavlik acquisition should improve VMware’s penetration in the SMB sector, as SaaS-based solutions from Shavlik are expected to enhance the company’s portfolio with solutions for Managed Service Providers (MSPs) and Solution Providers that could serve their SMB customers better. The acquisition will provide a competitive edge to VMware against its nearest rival Microsoft Corp. (NASDAQ: MSFT) in the SMB market.The company also recently announced a collaboration to develop the new VMware vShield 5 family products, using RSA’s (security division of EMC) Data Loss Prevention (DLP) classification technology and policies. 

Full Disclosure: None.
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