VMware, Inc. (VMW) 2Q Solid, Outlook Upbeat

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VMware, Inc. (NYSE:VMW) reported better than expected EPS for the second quarter and has given strong guidance for the third quarter of 2013, says a report from Topeka Capital Market by analyst Brian J. White. Many analysts expected weak outlook from the company due to a decline in the performance of various software vendors in recent weeks.VMware logo

Topeka Capital Market noted that the stock may witness a rally after the earnings, but it would not continue for very long. VMware also believes that performance is in line with its vision of a software defined data center, which is a chance for the company to drive attractive rates in the future.

VMware second quarter performance

For the second quarter, sales came in at $1.243 billion, similar to the estimates of Topeka at $1.235 billion and street consensus of $1.232 billion. Pro forma EPS was $0.79, outperforming Topeka capital analysts’ estimates of $0.77. VMware, Inc. (NYSE:VMW) posted Non-GAAP operating profit at $416.9 million over $410.0 million estimates.

In the second quarter, license revenue increased 9 percent to $530.5 million exceeding the analyst estimates of $517.5 million. Service revenue increased 1.3 percent quarter over quarter (QoQ) to $712.6 million less than estimates of $717.3 million.

In the service segment, software segment increased 1.5 percent sequentially to $614.3 million and below analysts’ estimates of $617.5 million. Professional service surged around 1 percent sequentially to $98.3 million in the quarter and slightly lower than Topeka Capital $99.8 million projection. Unearned revenue for the company surged by 3 percent QoQ to $3.60 billion, but lower than 5 percent QoQ or $3.65 billion estimate.

For the June quarter, vCloud and vSOM performed better and the company is counting on core vSphere business in the next half of fiscal 2013. ELA business contributed 37 percent of total bookings in the second quarter, the highest to now. VMware came out of six deals worth more than $10 million.

2013 and FY14 estimates

For the third quarter of 2013 VMware, Inc. (NYSE:VMW) is expecting revenue of $1.27 billion to $1.30 billion, incorporating license revenues of $535 million to $555 million. Revenue guidance for 2013 was adjusted by VMware at $5.12-$5.26 billion while operating margin is maintained at 33 percent to 34 percent.

Topeka Capital analysts are expecting revenue of $1.289 billion from $1.288 billion and pro forma EPS estimates of $0.81. For the full year 2013, Topeka has increased it EPS estimates to $3.27 from $3.23 (Street is at $3.28) while raising its 2014 EPS projection to $3.75 from $3.71.

Topeka Capital Market issued a Hold rating on VMware, with a price target of $70.

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About the Author

Aman Jain
Aman is MBA (Finance) with an experience on both Marketing and Finance side. He has worked as a Risk Analyst for AIR Worldwide, and is currently leading VeRa FinServ, a Financial Research firm. Favorite pastimes include watching science fiction movies, reviewing tech gadgets, playing PC games and cricket. - Email him at [email protected]

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