WMware Earnings: Why Are Shares Falling After Hours?

Jan.29.13 | About: VMware, Inc. (VMW)

VMware (VMW) reported earnings for its 4th quarter of 2012 on Monday evening, which beat expectations.

The company reported fourth-quarter net income of $205.8 million or $0.47 per share, up from $200.4 million or $0.46 per share last year.

Adjusted net income for the quarter increased to $349.3 million or $0.81 per share from $266.3 million or $0.62 per share last year. On average, 40 analysts polled by Thomson Reuters expected earnings of $0.78 per share for the quarter. Analysts' estimates typically exclude special items.

Revenues for the fourth quarter grew 22% to $1.29 billion from $1.06 billion last year. Analysts estimated revenues of $1.28 billion for the quarter.

So Why Are Share Prices Falling?

First-quarter revenue will be $1.17 billion to $1.19 billion, which fell short of the analysts' average estimate of $1.25 billion, according to data compiled by Bloomberg.

Further, VMware signed more agreements in the quarter with smaller businesses because many large corporations already have its software, said Rick Sherlund, an analyst at Nomura Holdings Inc. Competition from Microsoft (MSFT) and Oracle (ORCL), which may have also forced VMware to reduce prices, he said.

Earnings Highlights

Revenues for the fourth quarter were $1.29 billion, an increase of 22% from the fourth quarter of 2011. Operating income for the fourth quarter was $253 million, an increase of 18% from the fourth quarter of 2011. Non-GAAP operating income for the fourth quarter was $424 million, an increase of 25% from the fourth quarter of 2011.

Net income for the fourth quarter was $206 million, or $0.47 per diluted share, compared to $200 million, or $0.46 per diluted share, for the fourth quarter of 2011. Non-GAAP net income for the quarter was $349 million, or $0.81 per diluted share, compared to $266 million, or $0.62 per diluted share, for the fourth quarter of 2011.

Fourth quarter Non-GAAP diluted EPS was $0.81, an increase of 30.6% from the fourth quarter of 2011. Operating cash flows for the fourth quarter were $493 million, a decrease of 12% from the fourth quarter of 2011. Free cash flows for the quarter were $412 million, a decrease of 19% from the fourth quarter of 2011.

Revenues for 2012 were $4.61 billion, an increase of 22% from 2011. Operating income for 2012 was $872 million, an increase of 19% from 2011. Non-GAAP operating income for 2012 was $1.49 billion, an increase of 28% from 2011.

Net income for 2012 was $746 million, or $1.72 per diluted share, compared to $724 million, or $1.68 per diluted share, for 2011. Non-GAAP net income for 2012 was $1.24 billion, or $2.85 per diluted share, compared to $936 million, or $2.17 per diluted share, for 2011. Annual Non-GAAP diluted EPS was $2.85, an increase of 31.4% from 2011.

Operating cash flows for 2012 were $1.90 billion, a decrease of 6% and free cash flows for the year were $1.66 billion, a decrease of 7% from 2011. Cash, cash equivalents and short-term investments were $4.63 billion and unearned revenue was $3.46 billion as of December 31, 2012.

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