VMware 4Q Results Not Up to Mark

VMware Corp. announced its fourth-quarter results on Monday, but the revenue earned by the company missed Wall Street's expectations sending shares of the virtualization software maker tumbling in after hours trading.

The virtualization software made by VMware allows users to make more efficient use of their computing power. Virtualization allows a computer to act like multiple machines, each with its own operating system and software. VMware currently dominates the market but is now facing growing competition from much-larger rivals like Microsoft, Oracle and IBM.

VMware reported a profit of $78.2 million, or 19 cents per share, up from $31 million, or 9 cents per share, in the same period a year earlier. The company went public last August in one of the tech sector's most highly anticipated IPOs. VMware shares had quadrupled in value after the IPO, but have dropped since November.

VMware’s adjusted earnings, excluding stock options costs and other items, were 26 cents per share in the latest quarter. The company’s revenue escalated 80% to $412 million from last years $229.6 million. Analysts polled by Thomson Financial expected on average, a profit of 24 cents per share on sales of $417.4 million.

The company said that license sales made up 69% of the quarter's sales, while services deals contributed 31% of the fourth-quarter's revenue. Sales in the U.S. made up 52% of the quarter's revenue, with overseas deals accounting for 48% of the period's revenue.

Later in the day, Mark Peek, CFO of VMware said the company expects revenue to increase in 2008 by 50% over the $1.33 billion it reported for its 2007 fiscal year. This forecast amounts to a revenue of $1.96 billion for VMware, whereas analysts had estimated the company would post sales of $2.08 billion for 2008.

The below expectation quarterly result and the forecast of slowdown in sales growth caused the shares of VMware to plunge as much as 27% in after-hours trading on Monday. VMware's stock fell to $60.99 from an $83 close on the New York Stock Exchange.

The drop in VMware's stock price wiped out close to $9 billion in market capitalization.

Data storage giant EMC Corp., which owns more than 80% of VMware after it sold a minority stake in VMware to the public in August last year, saw its shares drop more than 12% in after-hours trading Monday. EMC shares fell to $14.99 from a New York Stock Exchange close of $16.91.