October 22, 2008 / 12:04 AM / 11 years ago

UPDATE 3-VMware results beat forecasts; outlook cautious

* Q3 EPS of 24 cents beats Reuters Estimates of 20 cents

* Company guides down revenue forecast

* Shares rise 22 pct in after-hours trading (Adds comments from CEO, background. Updates shares)

By Jim Finkle

BOSTON, Oct 21 (Reuters) - VMware Inc (VMW.N) reported higher third quarter earnings that beat Wall Street’s low expectations sending its shares up 22 percent as the results showed the weakening economy did not hurt the company as much as feared.

“Expectations were very low. Good for them,” said Jefferies & Co analyst Katherine Egbert. “It’s a relief rally.”

The stock in the business software maker, which is majority-owned by EMC Corp EMC.N, had lost 79 percent in the year through Monday, making it the worst performer in the 44-member Dow Jones US Technology-Software Index.

VM shares rose late on Tuesday, even as its executives were extremely cautious about the current business climate.

They guided down their 2008 revenue forecast, declined to issue a 2009 growth forecast and warned of “extreme reluctance” among business leaders to approve software purchases.

The company also told investors that it expects sales in the quarter ending March 31, 2009, to drop from the quarter ending Dec 31. It would be the first quarter-on-quarter decrease in the company’s 10-year history.

“The going is going to be tough,” Chief Executive Paul Maritz said in an interview.

VMware told investors revenue may come in at the low end of its previous forecast for 42 percent to 45 percent growth in 2008.

Maritz said in the interview that the company could have trouble meeting the 42 percent growth target if the economy continues to deteriorate.

“We’re not changing our guidance, but times are uncertain,” he said. “This is a very dynamic environment, and six weeks from now things could look different.”

Maritz declined to comment on the sales outlook for 2009, but when asked if there was a chance that revenue might decline next year, he said that the company’s outlook is tied to the economy.

“It really is a case where just everybody is not sure what is going to happen,” he said.

“You can paint a scenario where things get pretty dire and the world goes into a deep recession and then everyone is going to have a hard time,” Maritz said.

“Or you can say that companies are going to invest their way through this, in which case since we are at the top of their investment lists, we might even proportionally benefit from it.”

Laura DiDio, an analyst with Information Technology Intelligence Corp, said that VMware is not alone in having its fate so closely linked to the economy.

“The real thing is, what’s going to happen with the next quarter? VMware, like every high-tech company, is going to have to hold their breath,” she said.

VMware reported profit excluding items of 24 cents for the third quarter ended Sept. 30, beating the 20-cent average forecast, according to Reuters Estimates.

Revenue grew 32 percent to $472 million, beating the average analyst forecast of $463 million.

Shares of the Palo Alto, California-based company rose to $22.87 in extended trading on the New York Stock Exchange. They had closed at $18.73 in regular trade.

VMware, which is majority-owned by EMC Corp reported third-quarter net income of $83.3 million, or 21 cents per share, versus $64.7 million, or 18 cents, a year earlier.

EMC took the company public in August 2007 in one of the hottest tech IPOs in recent memory, running up from $29 to a record high of $125.25 in October of last year. (Additional reporting by John Tilak, editing by Matthew Lewis and Carol Bishopric)

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