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VMware (VMW) is scheduled to report 3Q 2011 earnings after the closing bell on Monday, October 17. The leader in cloud computing and virtualization is up about 20% from the lows earlier this month, nearing $95 resistance.

VMware remains the dominant market leader in the high-growth server virtualization market, benefiting from improved traction and new products. There are also reports that vSphere 5, its upgraded cloud infrastructure application, is gaining widespread adoption and should boost long-term licensing growth. Among the concerns headed into the third quarter results include valuation, with the shares trading at more than 70x earnings, while peaking hardware capacity has the potential to limit near-term growth.

VMware is seen posting Non-GAAP Earnings Per Share (EPS) of $0.50 (high number on the Street is $0.54) on revenues of $929.15 mln (up 30%) (Source: Yahoo! Finance). The company previously provided a 3Q revenue range of $915 mln to $940 mln. Given the recent-run up in the shares, VMware will need to post earnings at or above the high end of consensus views to maintain the upward momentum.

Keep an eye on EMC Corp. (EMC), the former parent and significant holder of VMware, along with other names tied to cloud-computing, including Citrix Systems (CTXS), Salesforce.com (CRM), Red Hat (RHT), and Commvault Systems (CVLT).

Chart Review

  • VMware is closing in on resistance near $95 per share. Since mid-august, the shares failed several times to overcome this key near-term barrier.
  • Beyond $95, the next key hurdle is the $100-level.
  • Should the earnings release prove to be disappointing, look for support near the 200-Day SMA at $90, with further downside risk to the 50-Day SMA at $87.50.

Click to enlarge.

VMW1 VMW2

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Source: Volatility Alert For VMWare Pre-Q3 Earnings