* Q2 outlook weak; blames economy, software upgrade
* Q1 non-GAAP EPS 25 cents vs Wall St view 20 cents
* Software sales fall for first time in company history
* Shares fall 14 percent after hours
(Adds results details, analyst comment; updates shares)
By Jim Finkle
BOSTON, April 22 Business software maker VMware
Inc (VMW.N) warned that its revenue would dramatically miss
Wall Street forecasts due to the weak economy and a new product
launch, sending its shares down 14 percent.
The 11-year-old maker of virtualization software posted on
Wednesday its first-ever decline in quarterly software sales
and said the impact of the recession would be exacerbated this
quarter by pains associated with a major product upgrade.
VMware, majority owned by EMC Corp EMC.N, estimated
second-quarter revenue to be flat or down from $456 million in
the year-ago period. That was below analysts' average forecast
for revenue of $501 million, according to Reuters Estimates.
"It's a serious miss. It is not just the magnitude that is
troubling. It is the reason they are giving," said Global
Equities Research analyst Trip Chowdhry. "There is something
fundamentally wrong -- either in product strategy or sales
Company executives presented a grim picture of the economy,
saying customers are not investing in new projects.
"We cannot promise a near-term change from the current
tough conditions we are in," Chief Executive Paul Maritz said
on a conference call.
"The year started very tough," he said. "There were signs
of improving sentiment towards the end of the quarter. It
hasn't yet translated into people opening their wallets."
VMware's software lets companies boost the efficiency of
severs by running dozens of "virtual" machines on a single
piece of hardware.
VMware said the launch of the new vSphere 4 line of
virtualization software -- its first major product upgrade in
three years -- will upset an already unsettled sales cycle as
distributors get accustomed to the new product and customers
test new features before getting comfortable deploying them.
Chief Operating Officer Tod Nielsen said he was not sure
when the sales cycle would return to normal. "The honest answer
is we just don't know," he said in an interview.
Goldman Sachs analyst Sarah Friar said it is not unusual
for sales to soften when a company launches a major product
upgrade, but the news is still unsettling to investors.
"It sounds a little bit excuse-y, which I don't love," she
said. "But in fairness, when most companies have a new product
cycle, there is a lull ahead of the storm. Everybody needs to
test and understand a new version before they buy it."
Investors had expressed high hopes that vSphere would
invigorate sales, sending VMware shares up 65 percent from
March 5 to its formal launch on Tuesday.
Maritz said he did not expect its introduction to provide
any near-term "pump" to sales. The product adds technologies to
help centralize delivery of computing resources to VMware's
existing virtualization software.
First-quarter software sales dropped 13 percent to $257
million. Investors were expecting software sales of about $270
million, according to Friar.
Total revenue, which includes maintenance and other
services in addition to software sales, rose 7 percent to $470
million. Analysts were expecting revenue of $474 million.
The revenue shortfalls overshadowed earnings that were
ahead of expectations. First-quarter profit excluding items of
25 cents, above the 20 cent average forecast, according to
Net income rose 62 percent to $69.9 million, or 18 cents
per share, from $43.1 million, or 11 cents a year earlier.
The company's shares fell 14.4 percent to $27.85 in
extended trade. They had climbed 7.7 percent on the New York
Stock Exchange before VMware released its results.
(Reporting by Jim Finkle; Editing by Richard Chang, Leslie