VMware Q4 2012 Earnings Beat the Street But Layoffs Coming
Virtualization bellweather VMware (NYSE: VMW) beat Wall Street estimates for Q4 2012 but immediately tempered enthusiasm for its financial performance with a gloomy outlook for 2013 and a restructuring plan to cut 900 jobs. The fallout? VMware’s stock got hammered down by nearly 15 percent, in a similar scenario to what happened to Apple’s (NASDAQ: AAPL) and Google’s (NASDAQ: GOOG) issues last week when both of those companies posted impressive sales and earnings reports as well.
For Q4 2012, VWware posted $1.29 billion in revenue, up 22 percent from the same period last year, and net earnings of $206 million, or 47 cents per share, a slight increase from the $200 million and 46 cents per share it earned in the same quarter in 2011. For the 2012 fiscal year, VMware took in $4.61 billion, a 22 percent jump over last year, with U.S. revenues coming in at $2.23 billion and international sales at $2.38 billion, both representing a 22 percent boost over last year. License revenue, at $2.09 billion for the year, grew 13 percent over last year, while software maintenance and support sales of $2.15 billion spiked 31 percent over 2011. The vendor closed the year with $4.63 billion in cash on hand.
Those are great numbers and all were in line with or better than analysts’ expectations. Now, here comes the rub: VMware is forecasting Q1 2013 revenue of between $1.17 billion and $1.19 billion, a less-than-stellar increase of 11 percent to 13 percent and far below analysts’ expectations of $1.25 billion. The company expects 2013 revenues in the range of $5.23 billion to $5.35 billion, up 14 percent to 16 percent over 2012.
And, VMware revealed plans to lay off, as part of a restructuring, some 900 people as it streamlines operations and de-emphasizes certain businesses, such as SlideRocket, a maker of online presentation tools the vendor acquired in April 2011 but is no longer central to customer needs. VMware added it will take a charge of $90 million to $110 million related to the job cuts and leaving some lines of business, the lion’s share of which it will incur in Q1 2013.
“As we invest in our core opportunities, we plan to scale back resources in other areas of the business,” said Jonathan Chadwick, VMware chief financial officer and executive vice president in an earnings call. “This includes shipping talent to new roles that support our core growth opportunities, as well as targeted reductions of approximately 900 people. Some of these will be provisional eliminations associated with streamlining operations and some will result from targeted product actions.”
Overall, including the planned layoffs, VMware expects to add about 1,000 employees over the course of 2013, Chadwick said.
And what of VMware’s core priorities for 2013? The software-defined data center, end user computing and the hybrid cloud top the list, Chadwick said.
“We see these as being large, important markets for VMware and we are investing for the long term. At the same time, we continued to examine our investment portfolio and plan to reduce our investments in certain non-priority areas. Over time, these actions will allow us to accelerating top and bottom-line growth,” he said.
Chadwick noted that the VMware/EMC Pivotal Initiative, which combines the companies’ resources for Big Data and cloud application platforms under one roof, also is vital to the 2013 blueprint. In mid-March, VMware intends to provide an update on the effort at the EMC VMware Strategic Forum.
