VMware Profit Soars 63% on Surge in Revenue -- Update

By Erin McCarthy 

VMware Inc. warned it expects its operating margins to decline following its acquisition of AirWatch later this year.

Shares slipped about 5% in after-hours trading as the virtualization-software maker estimated that margins in its second quarter, ending in June, would decline 1.5% to 2% sequentially.

VMware unveiled last week a $1.54 billion deal to buy closely held AirWatch, the software company's first major move to exploit the mobile-device boom and its largest acquisition so far. AirWatch helps companies manage and deploy smartphones, tablets and the software that runs on them. The deal is expected to close late in the first quarter.

"There are some concerns about them saying second-quarter margins are going to go down," said Abhey Lamba, senior technology analyst at Mizuho Securities.

In addition, estimates that the billings growth rate was slower than the pace of revenue growth was a concern for some analysts, said Matthew Hedberg, analyst at RBC Capital Markets, LLC.

The warning came as VMware posted earnings that beat market estimates.

VMware has sought to increase bookings by bundling its core virtualization software, an important component of the information-technology sector's shift to cloud computing, with new offerings.

VMware, which is majority-owned by storage vendor EMC Corp., reported a profit of $335 million, or 77 cents a share, up from $205.8 million, or 47 cents a share, a year earlier. Excluding special items, per-share earnings improved to $1.01 from 81 cents. Analysts surveyed by Thomson Reuters had forecast a per-share profit of $1.

Revenue increased 15% to $1.48 billion, in line with the company's recent forecast.

Operating margin widened to 25% from 19.5%.

Revenue from services--which include subscriptions, consulting and support--grew 14%, while license revenue rose 15%.

Through the close, the company's stock was up 15% in the past three months.

Write to Erin McCarthy at [e-mail]

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