The Cloud

VMware Posts Higher Profit, But Bookings Weak

VMware shares were pummeled after a mixed earnings report and the announcement of a new joint venture.
Katie Kuehner-HebertOctober 21, 2015

While VMware on Tuesday posted better-than-expected profit for the third quarter, weaker-than-expected bookings are creating anxiety about the company’s independence after parent company EMC merges with Dell.

The Palo Alto, Calif.-based maker of software used to consolidate applications on corporate servers said that non-GAAP profit was $1.02 a share, excluding costs, on sales of $1.67 billion. Analysts on average had projected profit of $1 per share and revenue of $1.66 billion, according to Bloomberg. Profits were up18% from the third quarter of 2014, and revenues increased 10% from that period.

However, bookings, a gauge of future revenue, rose just 3%, far below the 11% gain that analysts had anticipated, Mizuho Securities analyst Abhey Lamba told Bloomberg.

Drive Business Strategy and Growth

Drive Business Strategy and Growth

Learn how NetSuite Financial Management allows you to quickly and easily model what-if scenarios and generate reports.

To boost VMware’s cloud business, in concert with the earnings release VMware and EMC said they would create a new cloud-computing joint venture under Virtustream, which EMC acquired for $1.2 billion. That business should generate several hundreds of millions of dollars next year, but post an operating loss.

VMware expects to consolidate Virtustream’s results into its financial statements beginning in the first quarter of 2016.

“We are very optimistic about the long term value to VMware of the Dell and EMC plans to merge and the formation of the cloud services business,” VMware chief executive Pat Gelsinger said in a press release. “VMware’s mission and strategy remain unchanged as we continue to deliver extraordinary value to our customers through the power of disruptive innovation.”

For the fourth quarter, VMware forecast sales of $1.83 billion to $1.88 billion and profit of $1.23 billion to $1.27 billion. Analysts had predicted revenue of $1.87 billion and profit of $1.23 billion.

VMware shares were down 20% on the earnings and Virtustream news. The company’s shareholders have also been unsettled by the tracking stock that will be created as part of EMC’s deal with Dell.