VMW VMware

[lamborghini]

VMW .. Reports Q4 (Dec) earnings of $0.26 per share, includes a $0.01 tax benefit, $0.02 better than the First Call consensus of $0.24 .. revenues rose 79.7% year/year to $412.5 mln vs the $417.4 mln consensus. Co reported non-GAAP operating margins of 26.2% vs ~26% street expectation and 25.4% in the prior quarter. VMW plans to host a conf call today to review its Q4 and full-year financial results and provide forward-looking guidance for 2008.

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U.S. revenue for 2007 grew 84% from a year ago to $721 million, and international revenue increased 94% to $605 million. U.S. revenue represented 52% of total revenue in Q4 .. saw strength in all international markets, continued to invest globally in sales, marketing, and product support, did not receive any benefit from currency translation, overall transaction size is increasing.

co expects % rev growth to be higher in 1H08

co is not working in a price decrease into guidance (so do not expect
competition to cause them to lower)

co notes that they have been doing guidance internally so not just a shot in the dark, 50% rev growth guidance is largely based on the scale of their business

co says did not see any notable weakness in the U.S. markets in any particular quarter, not providing a breakout between services and license in guidance

co says they see great demand but they need to see how the market develops before they make some assumptions, says competition is not delaying sales, says customers have tried some competitors products and told the co they see no reason to switch, guidance does not take into consideration a significant upswing in desktop.

co expect to continue to grow deferred revenue at a substantial rate

co says have been building guidance independently of EMC

co states that they are not providing capex guidance at this time, reiterates belief that they can maintain prices.

[lamborghini]

VMware investors find it hard to stay in the game
Commentary: High valuation means strong sales growth ignored

By MarketWatch
Last update: 6:18 p.m. EST Jan. 28, 2008

SAN FRANCISCO (MarketWatch) -- Investors and Wall Street seem unclear about how exactly to value VMware Inc., given the stock's wild swing over the last few months and its sharp sell-off after Monday's closing bell.

The Palo Alto, Calif.-based maker of virtualization software (VMW) reported that fourth-quarter revenues that surged 80% from the previous year, with earnings up more than 150% over that same period. Most companies -- and investors -- would kill for that kind of growth. But investors pummeled the shares in late trading after revenues fell slightly short of the forecasts set by Wall Street analysts.

The sell-off also dragged VMware parent EMC Corp. (EMC) , down as well. EMC, which has a majority stake in VMware, fell more than 12% after hours.

Technology shares often suffer these kind of bruisings from investors who see them as momentum stocks, where it's all about expectations. VMware has taken the notion of momentum to a new level, having rocketed from its IPO price of $29 in August last year to more than $125 just three months later.

The stock has sold off sharply since its Halloween peak, shedding more than one-third its value in what's become a souring environment for tech shares.

VMware may not have helped matters by failing to include any kind of forecast with its results. But revenue growth of 80% is nothing to sneeze at.

While the company does face new competition from Microsoft Corp. (MSFT) and from some startups in the virtualization sector, VMware is still the dominant player in software that makes servers run better. But with its shares at such a high valuation, the company seems to have little wiggle room.

[MontrealStocks]

Not that surprised to see this one pummel, disregarding the company's growth(I know it doesn't work that way), is VMW's current business really worth more than say 15-20$ a share? A 30 Billion market cap needs to be justified and there were talks of even better earnings than the spectacular ones it had.

[dn4911]

WE ARE LOWERING OUR RATING on VMware from Neutral to Underperform and reducing our target price to $33 from $60, based on our belief that the server-virtualization market could represent a significantly smaller addressable market versus the opportunity implied in current consensus license-revenue estimates and VMware's share price.

Specifically, we believe Wall Street has largely misunderstood three potential negatives that could significantly impact the industry-growth model: 1) the secular shift to multicore processors; 2) decreasing memory constraints; 3) the potential change to per-server licensing.

Given that increased usage of multicore processors combined with decreasing memory constraints improve consolidation ratios over the next several years, VMware's dual-processor licensing policy allows customers to take advantage of increased server and processor performance for virtual environments without a corresponding increase in licensing cost -- resulting in negative leverage for VMware.

We have learned that Citrix Systems enacted a major change to its pricing model on March 31, 2008 -- moving from per-socket to per-server licensing, regardless of the number of sockets or processing cores on the system. If the new pricing structure influences the market, VMware's license revenue faces not only pressure from the shift to multicore processors but also multisocket servers.

Based on our detailed driver model, we forecast the total license revenue opportunity for server virtualization over the next five years to equal $7.2 billion -- a meaningfully lower amount of license revenue versus our estimate of consensus expectations of $12.6 billion. As such, we are adjusting our 2009 revenue and earnings-per-share forecast from $2.6690 billion and $1.51 to $2.286 billion and $1.21, respectively.

-- Philip Winslow, CFA
-- Bryan McGrath
-- Dennis Simson