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VMware Offers US Employees A Chance To Swap Their Post-IPO Stock Options

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Tech Trader Daily found out that VMware today disclosed in an SEC filing that it plans to offer employees a chance to swap their post-IPO, “underwater” stock options for an equal number of options with an exercise price equal to the share price on the day immediately following the data the exchange is finished. Got that?

ZDnet clarifies:

Non-U.S. employees will be granted  a “to-be-determined proportionate number of restricted stock units after the exchange offer for U.S. employees is completed,” president and CEO Paul Maritz wrote in an e-mail to employees.

…

U.S. employees will get the same number of options – but at a price based on the close of the stock the day after the exchange is completed. In addition, the clock on the options vesting schedule will start over. The exchange is voluntary and company executives are not eligible.

John DiFucci, software analyst with J.P. Morgan apparently said this: “[This is more of] an effort to abate a brain drain from the company… While we consider this a modest positive for the stock, we also note that it acts to slightly dilute current shareholders.”

VMW, which rose $1.94 in the regular session, is off 28 cents, or 0.7%, to $38.61, in after hours trading.

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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]

VMware’s Financial Results For Q1 Are In, 69 Percent Revenue Increase Beats Wall Street Expectations

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VMware today announced financial results for the first quarter of 2008:

  • Revenues for the first quarter were $438 million, an increase of 69% compared to the first quarter of 2007. (Analysts were expecting a top line of $422.4 million, according to Thomson Financial.)
  • GAAP operating income for the first quarter was $48 million, compared to $46 million in the first quarter of 2007. Non-GAAP operating income was $106 million, an increase of 62% over the year-ago quarter.
  • GAAP net income for the quarter was $43 million, or $0.11 per diluted share, compared to $41 million, or $0.12 per diluted share, in the year-ago quarter. Non-GAAP net income for the quarter was $88 million, or $0.22 per diluted share, compared to $0.16 a year ago.

From the press release:

First-quarter U.S. revenues grew 65% compared to the year-ago quarter on increased demand from large enterprises standardizing on the VMware platform and an increase in the number of smaller transactions delivered through VMware channel partners. International revenues, which increased 74%, were driven in part by triple-digit business growth across Australia and emerging markets including Brazil, China, India and Russia.

Software license revenue grew 73% compared to the same period last year to $294 million and service revenue, including support, subscription and professional services, increased 62% to $144 million.

As for the financial outlook:

  • VMware continues to expect 2008 revenue growth of approximately 50% compared to 2007.
  • Second quarter 2008 revenues are expected to increase approximately 55% compared to the second quarter of 2007.

The stock was up $1.95, or 3.5%, to $58.02 in after-hours trading.

“Our product suite has a very high return on investment,” Greene said. “That puts us in a very good position for getting wallet share as the economy gets a little more uncertain.” Large deals, valued at $1 million and up, made up 20% of bookings during the quarter, Greene said in an interview.

Total bookings were not disclosed.

[Source: TheStreet]

VMWare Misses Analysts’ Estimates: While Revenues Go Up, Stock Goes Down

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Yesterday, VMware reported quarterly revenue that fell short of Wall Street expectations and forecast a slowdown in sales growth, sending its shares down more than 26 %.

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The highlights from the official announcement :

Total revenues for the fourth quarter were $412 million, an increase of 80% compared to the year-ago quarter.

GAAP operating income for the fourth quarter was $76 million compared to $37 million in the fourth quarter of 2006.  Non-GAAP operating income was $108 million, representing 26% of fourth-quarter revenues and an increase of 72% over the year-ago quarter.

GAAP net income for the quarter was $78 million, or $0.19 per diluted share, compared to $31 million, or $0.09 per diluted share, in the year-ago quarter.    Non-GAAP net income for the quarter was $103 million, or $0.26 per diluted share.  GAAP and non-GAAP net income for the fourth quarter of 2007 include a $0.01 per diluted share benefit from a change in tax rate.

Total revenues for the full fiscal year 2007 were $1.33 billion, an increase of 88% compared to 2006.

GAAP operating income for the full fiscal year 2007 was $235 million compared to $121 million in 2006.  Non-GAAP operating income for the year was $338 million, representing 26% of full-year revenues and an increase of 77% over 2006.

GAAP net income for the year was $218 million or $0.61 per diluted share, compared to $86 million, or $0.26 per diluted share, in 2006.  Non-GAAP net income was $295 million or $0.82 per diluted share.

VMware shares had quadrupled in value after an August initial public offering, but have dropped since November.

The company on Monday forecast revenue growth of 50 percent in 2008, versus 88 percent in 2007. That would suggest revenue of $2 billion, shy of Wall Street targets.

“If you miss your numbers in just your second quarter after going public that suggests the stock was overhyped,” said Trip Chowdhry, an analyst at Global Equities Research.

According to the Server Virtualization Blog ,  the company’s CEO Diane Greene maintained that the company will not lower product pricing in 2008. “We do think we can maintain our pricing,” Greene said on an earnings call with investors. “We anticipate continuing our pricing over the course of the year.”

VMWare surge puts virtualization in the spotlight

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VMWare’s stock soared on its first day of trading yesterday, giving the company a market value upward of $10 billion, showing that virtual machines are starting to add up to real dollars.

Virtual machines, the technology that VMWare helped pioneer, allow one computer to act as many, whether it’s a Mac running Windows and the Mac operating system at the same time or a massive server running multiple instances of Windows and Linux simultaneously. Once a niche technology, virtualization is expanding rapidly as businesses try to get more bang for their server buck.

Investors are betting that virtualization technology is going to have a big impact and that VMWare will profit from its early lead in the field.

More information by Ina Fried at: Cnet