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EMC/VMW Acquisition By Cisco Imminent?

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Great field work on Virtualization.info today about the fact that investors are buying heaps of VMware stock, signalling that something is up.

A small excerpt:

Monday’s SEC filings shows that Cisco posted a prospectus on raising $4 billion in senior bonds. The book building is run by all the major investment banks and is closing on February 17.
Cisco must be really confident for such a major issuance in these market conditions, but Standard & Poors is giving the senior unsecured notes an A+ rating with a stable outlook.
Cisco will use $500 million of the $4 billion to repay short term debt.  When combined with sizeable cash holdings, this leaves them with with $4.7 billion in cash at the US parent company. According to CNET that amount excluded cash holdings at subsidiaries overseas.

VMware: Fourth Quarter Disappointing But Still Better Than Expected

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VMware today announced financial results for the fourth quarter and full year 2008.

  • Revenues for the fourth quarter were $515 million, an increase of 25% from the fourth quarter of 2007.
  • GAAP operating income for the fourth quarter was $102 million, an increase of 34% from the fourth quarter of 2007. Non-GAAP operating income for the fourth quarter was $135 million, an increase of 25% from the fourth quarter of 2007.
  • GAAP net income for the fourth quarter was $111 million, or $0.29 per diluted share, compared to $78 million, or $0.19 per diluted share, for the fourth quarter of 2007. Non-GAAP net income for the quarter was $142 million, or $0.36 per diluted share, compared to $103 million, or $0.26 per diluted share, for the fourth quarter of 2007.
  • Revenues for the full year 2008 were $1.9 billion, an increase of 42% from 2007.
  • GAAP operating income for the full fiscal year 2008 was $313 million, an increase of 33% from 2007. Non-GAAP operating income for the year 2008 was $469 million, an increase of 39% from 2007.
  • GAAP net income for the full fiscal year 2008 was $290 million, or $0.73 per diluted share, compared to $218 million, or $0.61 per diluted share, for 2007. Non-GAAP net income for the year 2008 was $416 million, or $1.05 per diluted share, compared to $295 million, or $0.82 per diluted share, for 2007.
  • Cash was more than $1.8 billion and deferred revenue was $870 million as of December 31, 2008. Since the beginning of 2008, cash increased 50% and deferred revenue increased 57%.

U.S. revenues for 2008 grew 37% to $988 million from 2007. International revenues grew 48% to $893 million from 2007.

License revenues for 2008 grew 30% to $1.2 billion from 2007. Services revenues grew 67% to $703 million from 2007.

(Release)

For analysis, read Tech Trader Daily and Between The Lines.

Cisco Ups Stake In VMware

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Cisco announced yesterday that it will acquire an increased equity stake in VMware.

Cisco will purchase 500,000 shares of VMware Class A common stock currently held by Intel for approximately $13.3M. Upon closing of the investment, Cisco will own approximately 1.7% percent of VMware’s total outstanding common stock.

Cisco’s purchase is intended to build on the strong inter-company collaboration between Cisco and VMware in the adoption of the companies’ virtualization products and solutions that address the intersection of virtualization and networking technologies.

In September, 2008, Cisco and VMware announced several joint initiatives in the data center virtualization market including the launch of the The Cisco Nexus® 1000V distributed virtual software switch, enhanced professional services and reseller certification training

VMware Earnings Call: Solid Q3, Maritz Not Afraid Of Microsoft

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VMware reported better than expected financial results today and said it was standing by its forecast for the rest of the year, albeit at the lower end of its guidance.

Revenue for the third quarter was US$472 million, up 32 percent from the same period a year ago. That’s slower growth than VMware has reported in the past, but still ahead of the $463 million that financial analysts had been expecting, according to a poll by Thomson Reuters.

Net income was $83 million, or $0.21 per share, up from $65 million, or $0.18 per share, in the third quarter last year. That too was ahead of the analyst forecast, which called for earnings of $0.20 per share.

VMware maintained its forecast for 2008 revenue growth of 42 percent to 45 percent, but it cautioned that the economic uncertainty makes it difficult to predict demand for its products. It said there was “an increased likelihood that 2008 revenue will be at the lower end of the guidance range.”

VMware CEO Paul Maritz called the figures “solid” in the face of a “challenging economic environment.” During the call with financial analysts, Maritz also said VMware has not seen its sales drop off since Microsoft introduced Hyper-V into the virtualization market in June. Maritz is also confident that VMware’s product roadmap is a full 12 to 24 months ahead of Microsoft’s virtualization roadmap.

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.

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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