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Wachovia Analyst Downgrades Ratings for VMware (VMW)

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Wachovia’s Philip Rueppel this morning was the latest analyst to take a machete to his EPS estimates for the software sector, reducing numbers for most of the companies he follows.

“We are reducing estimats for a majority of companies in our universe, as we believe typical Q4 budget-flush will be muted this year, and growth prospects for new licenses next year will be muted,” he writes.

As part of his call, Rueppel downgrades his ratings on VMware (VMW) to Market Perform from Outperform, asserting that the company has “particularly acute issues due to their customer base segmentation, and/or growth expectations.”

In today’s trading VMware is down 67 cents, or 3%, to $21.90.

Trading Activity In NetApp, VMware Spikes

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According to a report from the Wall Street Journal, stocks of both NetApp and VMware have been trading at unusual volumes yesterday.

Trading in NetApp spiked to four times the normal level, with investors picking up 38,000 calls that allow them to buy the company’s stock and 5,000 puts that allow them to sell it. NetApp shares closed at $25.55, up 6.1%.

Fueling activity in VMW trading was the recent chatter that Cisco could be interested in acquiring VMware. With calls outnumbering puts by seven to one, traders gravitated to September $45 calls. The contracts are priced at 70 cents and make money if VMware shares jump above $45.70.

They closed at $38.49, up 4.1%.

VMware (VMW): Second-Quarter 2008 Results (Updated)

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VMware reported its second-quarter 2008 results today, with an earnings conference call which was followed closely after the abrupt removal of Diane Greene two weeks ago (see our ‘the week after‘ post too for reference). Don’t feel too bad for her, we’ve just reported on her potential payout, which could be well over $50 million USD.

These are the results that were just announced, in bullet points:

  • Net income of $52.4 million, or 13 cents a share, compared with $34.2 million, or 10 cents a share, a year earlier.
  • Revenues for the second quarter were $456 million, an increase of 54% from the second quarter of 2007. Update: this is below Wall Street analysts expectations and estimates, who projected $458,6 to 460 million in revenue – (which the company also projected in April but revised later on). Shares going down.
  • GAAP operating income for the second quarter was $61 million, compared to $47 million for the same period last year.
  • Non-GAAP operating income was $112 million, an increase of 52% from the second quarter of 2007.
  • GAAP net income for the quarter was $52 million, or $0.13 per diluted share, compared to $34 million, or $0.10 per diluted share, for the second quarter of 2007.
  • Non-GAAP net income for the quarter was $92 million, or $0.23 per diluted share, compared to $52 million, or $0.16 per diluted share, for the second quarter of 2007.
  • Cash exceeded $1.5 billion and deferred revenue was $721 million as of June 30, 2008.
Second quarter U.S. revenues grew 43% to $240 million from the second quarter of 2007. International revenues grew 68% to $216 million from the second quarter of 2007 driven by strength in Europe and Australia.
Software license revenue grew 39% to $284 million from second quarter of 2007. Service revenues, which include support, subscription and professional services, were $172 million, an increase of 85% from the second quarter of 2007.
As for the financial outlook:
  • 2008 revenues are targeted to grow approximately 42% to 45% compared to 2007. Update: this is rather modest.
  • Third quarter 2008 revenues are targeted to be within a range of approximately $462 to $468 million. Update: Analysts were projecting revenue of $497.3 million
  • Third quarter GAAP operating margin is targeted to be between 11% and 13%. This guidance includes stock-based compensation, employer payroll tax on employee stock transactions, amortization of intangible assets and capitalized software development costs which are targeted at 9% of projected revenue.

VMware is hosted a conference call today reviewing its results and discussing its financial outlook. The call was scheduled to begin at 2:00 p.m. PT/ 5:00 p.m. ET.

A noteworthy statement from Paul Maritz in the call was also the fact that VMware intends to make VMware ESXi completely free. The free version, officially called ESXi 3.5, will be available to download starting July 28. Maritz believes this approach to virtualization will help bring more customers into the VMware fold and make virtualization technology ubiquitous.

VMware

EMC Shares Up On VMware Spin-out Rumors

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Update: you might want to read this article about VMware co-founder Diane Greene leaving VMware before you read this post. Come back, though 😉

Financial analyst Thomas Curlin of RBC Capital Markets upped his rating on the EMC stock to “Outperform” from “Sector Perform”, even as it trimmed the stock’s price target from $21 to a more modest $19. The focus of his call: the prospects for a spin-out of the company’s stake in VMware.

Curlin notes that the company can spin out VMware to shareholders with minimal tax implications starting in early 2009. In his research note, Curlin writes:

“Management recently has suggested it does not plan to spin out VMware, but if the stock remains at current levels, we believe it could be forced to do so by activist shareholders. This possible scenario is a key aspect of our recommendation upgrade as it provides downside protection in a challenging macro context.”

Curlin figures that EMC is trading at a value of about $6.25 ex its stake in VMW; but he thinks the non-VMW business is worth $10-$14 a share. Shares of EMC closed at $15.05.

[Source: Tech Trader Daily]

VMware Stock Drops As Employee Grants Expire

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On a generally down day for tech stocks, VMware slipped on news that a large number of employee share grants may begin trading this week. The stock was down $4.19, or 6.2 %, to $63.70 in recent trading, or 61 times 2008 earnings and 43 times 2009 earnings. The Nasdaq was off 0.8 %.

Some 51.2 million shares of VMware are currently traded. According to UBS analyst Heather Bellini, about 11 million shares, or 22 % of the float, will become eligible to trade this week, as one-year grants to employees begin to vest. Another 3.5 million shares will vest in each of the next two quarters.

VMware has clawed its way back from a March low of $41.41 since posting first-quarter earnings in April that reported a still healthy revenue growth of 69 %. But the stock is well below its October high of $125, when year-over-year revenue growth was nearly 90 %.

VMware issued 33 million shares at $29 a share in an IPO.

Also check our earlier post on VMware financials.

[Source: TheStreet]

A Closer Look At VMware Financials

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Zachary Scheidt over at Seeking Alpha penned an excellent analysis of the current financial situation VMware is in. Scheidt correctly notes the corrent virtual monopoly the virtualization industry’s poster child holds, and dissects the company’s latest earnings releases.

A small excerpt:

In addition to the $438 million in revenue, the company announced an increase of $88 million in its deferred revenue which is essentially revenue the company has received for service not yet performed. The total is now $641 million which should help to stabilize future revenue as the company can draw on this balance during future periods. In fact, a Credit Suisse analyst had an interesting theory stating that this quarter was helped significantly by the company drawing on this deferred revenue base instead of new business actually driving the strong revenue number.

Read the whole article.