Home Technology VMware Inc. Down 19% On Low Guidance, Downgrades

VMware Inc. Down 19% On Low Guidance, Downgrades

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The stock price of VMware, Inc. (NYSE:VMW), declined by more than 19 percent to $79.19 a share. The company has received several downgrades from Wall Street analysts. The virtualization and cloud infrastructure company’s financial result for the fourth quarter met the expectations of Wall Street analysts; however, its revenue outlook was below their estimates.

During the fourth quarter of 2012, VMware, Inc. (NYSE:VMW)’s  revenue increased by 22 percent to $1.29 billion compared with its result a year. The company’s operating income during the three months period was $253 million, and net income was $206 million or $0.47 per diluted share. Its net income a year earlier was $200 million or $0.46 per diluted share.

For 2012, the company said its full revenues increased by 22 percent to $4.61 billion, and its annual operating margin was 18.9 percent. VMware Inc.’s net income was $746 million or $1.72 per diluted share.

Pat Gelsinger, CEO of VMware said the company delivered solid results for the fourth quarter and for 2012. He believed the company has good prospects this year. “We see a tremendous market opportunity in 2013 and beyond as we focus on what our customers value most: VMware’s role as a pioneer of virtualization technologies that radically simplify IT infrastructure from the data center to the virtual workspace.”

The company expected its revenues for the first quarter of 2013 to be around $1.170 to $1.190 billion and its revenues for the whole year to be in the ranged of $5.230 billion to $5.350 billion.

Wall Street analysts from Morgan Stanley (NYSE:MS), Piper Jaffray, Sterne Agee and Wunderlich Securities downgraded their ratings for the stock of VMware, Inc. (NYSE:VMW) to neutral.

Adam Holt of Morgan Stanley commented, “Despite a 4Q pick-up, weaker [fiscal] 13 growth targets, restructuring activity and the upcoming Pivotal Initiative spin-off all point to further transitions ahead for VMware. While this outlook may prove conservative, a lower growth profile and continuing uncertainty will likely keep multiples depressed.”

On the other hand, analysts at Credit Suisse Group AG (NYSE:CS) Equity Research maintained their outperform rating for the shares of VMware but lowered their target price from $115 to $110. They also reduced their 2013 revenue estimate for the company to $5.352 billion and EPS estimate to $3.23 per share.

In a research note, Credit Suisse analysts wrote, “Despite the better-than-expected results for the December quarter, management guidance sent VMware’s shares tumbling in the aftermarket, but we view the outlook as conservative guidance provided by a new management team.”

The analysts expect VMware, Inc.’s (NYSE:VMW) license revenue growth to re-accelerate in 2013 citing the timing of the peaks and through of VMware’s three-year ELA renewal cycle, which should transition from a headwind last year to a tailwind this year.