SEATTLE VMware Inc (VMW.N) beat Wall Street earnings estimates for the first quarter and indicated its margins would expand this year, as it landed some big new clients using its software for 'cloud computing', or online access to data and computing power.
VMware's stock jumped 11 percent after hours, while others in the sector such as Salesforce.com Inc (CRM.N) and Citrix Systems Inc (CTXS.O), also rose.
The Silicon Valley-based company, which vies with Microsoft Corp (MSFT.O) and Oracle Corp ORCL.O in the fast-growing field of computer virtualization, has served as a bellwether for the emerging cloud computing market. Its shares doubled last year, but came down to earth three months ago as it warned that it would focus on internal investments this year.
The market for server virtualization software -- which allows users to access information and create a 'virtual' operating system on any computer -- is still one of the tech industry's fastest-growing areas.
Companies are attracted to the idea as it promises to cut their spending on IT, as it centralizes administration and effectively lets customers only pay for the amount of computing power they actually use.
VMware took advantage of that in the first quarter, reporting net income that rose to $125.8 million, or 29 cents per share, from $78.4 million, or 19 cents per share, in the year-ago quarter.
Excluding some one-time items, it reported earnings of 48 cents per share, which beat Wall Street's average estimate of 42 cents, according to Thomson Reuters I/B/E/S.
Revenue rose 33 percent to $844 million, above analysts' average forecast of $815 million.
VMware said it had some success "closing large enterprise license agreements" during the quarter, but did not name any of its new clients.
For the second quarter it forecast sales of $860 million to $880 million, well above the $840 million expected by analysts.
"They had super-strong numbers, it was a real surprise," said Kim Caughey Forrest, senior analyst at Fort Pitt Capital Group. "We've known virtualization has been an area of focus for many companies for years, so this surge is unexplained."
The company also said it expected its non-GAAP operating margin for 2011 to "expand slightly" from 2010. Three months ago Chief Financial Officer Mark Peek said the company expected "little if any margin expansion in 2011". [ID:nN24198341]
Shares of VMware, which is majority-owned by data storage equipment maker EMC Corp EMC.N, rose to $95.60 in extended trading, after closing at $85.97 on the New York Stock Exchange. They hit an three-year high of $97.60 in mid-January.
(Additional reporting by Yinka Adegoke, editing by Bernard Orr and Carol Bishopric)