VMware outlook beats Street view

BOSTON (Reuters) - VMware Inc's (VMW.N) revenue forecasts beat Wall Street expectations and the business software maker said sales were strong to small- and mid-sized businesses. Its shares rose in 5 percent in after-market trade.

VMware's sales are growing faster than those of many other technology companies because its server virtualization products are used to build virtual data centers and cloud computing systems, two of the fastest-growing areas in the tech sector, said Jefferies & Co analyst Katherine Egbert.

"VMware owns the market," she said.

Revenue in the second quarter climbed 48 percent to $674 million, beating analysts' average forecast of $657 million.

The company said it expects third-quarter revenue of $680 million to $705 million, ahead of the $672 million average forecast of analysts, according to Thomson Reuters I/B/E/S.

VMware also raised its full-year revenue forecast to a range of $2.725 billion to $2.8 billion, from its previous outlook of $2.625 billion to $2.725 billion. That compares with the average analyst estimate of $2.71 billion.

Company executives said their forecasts were somewhat conservative, reflecting concerns that global economic recovery could stall.

For example, VMware's third-quarter forecast assumes the component of revenue that comes from sales of software will be flat compared with the second quarter, even though software sales typically rise in the third quarter.

"We have renewed concern about the macroeconomic environment, particularly Europe," VMware Chief Financial Officer Mark Peek said on a conference call. "We're just being cautious," he added.

The company is the dominant player in the rapidly growing market for virtualization software, an area where bigger software makers Microsoft Corp (MSFT.O) and Oracle Corp (ORCL.O) are trying to woo customers away from VMware.

VMware executives said the company posted strong growth in sales to small- and mid-sized businesses after boosting the functionality of a key product with a mid-tier price point.

Second-quarter profit, excluding items, was 34 cents per share, beating analysts' average forecast of 32 cents.

Palo Alto, California-based VMware said second-quarter net income more than doubled to $74.5 million, or 18 cents a share, from $32.5 million, or 8 cents a share, a year earlier.

Shares of VMware, which is majority-owned by EMC Corp (EMC.N), rose 5 percent to $76.01 in extended trade after closing at $72.42 on the New York Stock Exchange.

VMware is among the most richly valued software makers. The shares trade for about 47 times next year's average estimated earnings per share.

By comparison, rivals Microsoft Corp (MSFT.O) and Oracle Corp (ORCL.O) trade for about 11 times next year's earnings forecast.

(Reporting by Jim Finkle; Editing by Robert MacMillan and Steve Orlofsky)