VMware results, forecast boosted by strong sales of newer software

(Reuters) - VMware Inc VMW.N reported a better-than-expected rise in quarterly revenue, helped by strong sales of its newer virtualization software, and the company also said it would buy back $1.2 billion of its Class A stock this year.

VMware CEO Pat Gelsinger addresses a news conference in Tokyo July 15, 2014. REUTERS/Yuya Shino

Strong acceptance of its newer offerings also helped VMware forecast second-quarter revenue largely above analysts’ estimates, helping send the company’s shares up 8.7 percent to $55.95 in after-hours trading on Tuesday.

VMware’s new virtualization offerings include NSX, which makes networking more efficient, and vSAN, which organizes data in a way that increases storage capacity inside servers.

The company expects second-quarter revenue of $1.66 billion to $1.71 billion, compared with analysts’ average estimate of $1.66 billion, according to Thomson Reuters I/B/E/S.

Palo Alto, California-based VMware, which has been struggling on multiple fronts, is hoping those new products will offset declining demand for its traditional server-virtualization software.

Sales of VMware’s flagship vSphere software, which helps companies cut costs by running multiple operating systems on a single machine, have fallen as the market for the software has matured and customers shift to the cloud.

“The core business is still under pressure,” Cross Research analyst Shannon Cross told Reuters. “I think what they did was they threw a billion through this repurchase to shareholders to appease them.”

License bookings for NSX doubled in the first quarter, while those for vSAN tripled, VMware Chief Executive Pat Gelsinger said on an earnings call.

That helped push up the company’s first-quarter revenue by 5.2 percent to $1.59 billion, beating analysts’ average estimate of $1.58 billion, according to Thomson Reuters I/B/E/S.

License bookings from vSphere were less than 35 percent of total license bookings in the first quarter, down from more than half of total bookings two years earlier, Chief Financial Officer Zane Rowe said on the call.

License revenue fell slightly to $572 million from $576 million, as vSphere sales continued to decline.

VMware’s total net income fell to $161 million, or 38 cents a share, from $196 million, or 45 cents a share.

Excluding items, it earned 86 cents per share, beating average analysts’ estimate of 84 cents.

VMware's parent, EMC Corp, EMC.N is being acquired by Dell Inc [DI.UL]. Shares of EMC, which reports results on Wednesday, were up 1.7 percent at $25.99 after VMware's results.

VMware said on the conference call it expected to begin repurchasing shares after the EMC shareholder vote on the Dell merger.

Reporting by Kshitiz Goliya in Bengaluru; Editing by Savio D’Souza and Peter Cooney