January 29, 2013 / 12:50 AM / 6 years ago

VMware to cut jobs, disappoints with 2013 outlook

(Reuters) - Software maker VMware Inc plans to cut about 7 percent of its workforce as part of a restructuring, and it gave a cautious outlook for 2013 due to a decline in U.S. federal government spending and the likelihood of more tough economic times in Europe.

The company’s shares fell 14.6 percent in after-hours trading.

VMware Chief Executive Pat Gelsinger said on a call with analysts on Monday that the company would focus on its most popular products and would scale back in some areas of the business while putting more emphasis on certain geographies, product groups and operations.

Chief Financial Officer Jonathan Chadwick said that strategy included shifting some people to new roles as well as cutting 900 jobs, resulting in a charge of $90 million to $110 million. Most of that would be taken in the first quarter, he said.

Despite the cuts, Gelsinger said that “we will continue to grow, invest and hire in 2013 in support of our focused growth priorities.” As a result, he added, by the end of the year VMware’s headcount would be “up by approximately 1,000 people.”

He also said that VMware, a publicly traded division of data storage equipment maker EMC Corp, would continue to pursue mergers and acquisitions.

The company said it would provide more detail on March 13, at the EMC VMware Strategic Forum.

At that time the two companies also plan to give details on their so-called Pivotal Initiative, aimed at merging the data analytics and cloud application assets of the two companies.


For the time being, Chadwick said, VMware’s 2013 outlook did not include any specific guidance with respect to the initiative.

But it did take into account the macroeconomic environment, Chadwick said, noting an overall decline in U.S. federal government bookings.

He also said that Europe’s relatively stronger performance in the last three months of the year appeared “to have been the result of some pent-up demand preceding customer expectations of a tough 2013” and that VMware remained concerned about the region.

In addition, foreign exchange rates were likely to be a revenue headwind at least for the first quarter, he said.

The company, which also reported solid fourth-quarter earnings on Monday, said it expects revenue of $1.17 billion to $1.19 billion for the first quarter, an increase of 11 percent to 13 percent but short of the $1.25 billion estimated by analysts on average.

For the full year it forecast revenue of $5.23 billion to $5.35 billion, lower than estimates of $5.42 billion

“Generally speaking, we saw weakness across the U.S. as a whole,” Chadwick said, adding that for full-year 2012, federal bookings were down from those of 2011.

Smaller rival BMC Software also missed expectations with its 2013 outlook, after reporting third-quarter results below Wall Street estimates due to lower license bookings at its enterprise services management and mainframe service management businesses.

VMware shares dropped to $83.75 in after-hours trading, after closing regular trading at $98.32. BMC Software shares dropped 8 percent in extended trade on Monday.

VMware’s outlook drew a mix of reactions from analysts.

Daniel Ives, an analyst at FBR Capital Markets, said “they delivered a strong quarter but investor eyes are focused on the outlook.”

He added, however, that VMware tended to be conservative in its forecasts and that it had “underpromised and overdelivered” in the past.

But Mizuho Securities analyst Abhey Lamba said that “management’s 1Q13 outlook is significantly below normal seasonality, which could raise doubts about the company’s longer term growth potential”.

Revenue in the quarter was $1.29 billion, sightly above average analyst expectations of $1.28 billion, according to Thomson Reuters I/B/E/S.

Reporting By Nicola Leske; Editing by Steve Orlofsky

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