January 24, 2011 / 9:29 PM / 9 years ago

VMware warns margins static for 2011

SEATTLE (Reuters) - VMware Inc (VMW.N) warned operating margins were not expected to increase this year as it spends money on new hires and attacking international markets, even though it forecast higher-than-expected sales of its virtualization software.

Shares of the company, which vies with Microsoft Corp (MSFT.O) and Oracle Corp ORCL.O in the fast-growing field of computer virtualization, fell 4.4 percent after-hours. The stock closed down 3 percent in regular trading.

The market for server virtualization software — which allows users to access information and create a ‘virtual’ operating system on any computer — is one of the tech industry’s fastest-growing areas.

Shares of VMware, which is majority-owned by data storage equipment maker EMC Corp EMC.N, have more than doubled in the last 12 months.

The company reported fourth-quarter profit of $120 million, or 28 cents per share, compared with $56 million, or 14 cents per share, in the year-ago quarter.

Excluding some one-time items, it reported profit of 46 cents per share. Wall Street expected 44 cents, according to Thomson Reuters I/B/E/S.

Revenue rose 37 percent to $836 million, ahead of analysts’ average estimate of $804 million.

For the current quarter, VMware forecast revenue of $800 million to $820 million, ahead of the $786 million expected by analysts.

For the full year, it forecast revenue of $3.45 billion to $3.55 billion, just above analysts’ average estimate of $3.42 billion.

However, Chief Financial Officer Mark Peek said the company expects “little if any margin expansion in 2011,” on a conference call after the results.

He said 2011 non-GAAP operating margin for the full-year would be around 28 percent to 29 percent, about flat with 2010’s 28.5 percent.

“Although there is opportunity to expand the margins at this level of scale, we fundamentally believe it is the wrong approach and we are building our investment model assuming we will rapidly continue to hire high-quality engineering talent, and to extend our international market,” said Peek.

Reporting by Bill Rigby; editing by Carol Bishopric, Bernard Orr

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