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VMware: 2016 to be a year of transition

The virtualisation giant warns that 2016 will be a bumpy ride as it reports its fourth quarter results

VMware investors should buckle up for a bumpy 2016, as the virtualisation giant warned that it is likely to miss expectations for the year.

The warning came as the company reported its Q4 and FY2015 earnings. VMware said that it expects to post revenue between $6.8bn and $6.9bn in 2016, below the $7.2bn analysts were predicting.

The Palo Alto-based company also announced that it was to cull 800 roles, most of which appear to be coming from the vCloud Air division of the business. On a conference call with analysts, CEO Pat Gelsinger said that the company would also record restructuring charges of between $55m and $65m.

“2016 will be a key transition year as we expect the effect of our new products to outweigh the decline in our compute products,” Gelsinger said. “With this as a backdrop, in 2016, we expect both total and license bookings to exceed revenue growth by 3 to 5 percentage points as we build our deferred revenue for accelerated growth in 2017 and beyond.”

With regards to the EMC-Dell merger, Gelsinger attempted to offer some comfort to investors.

“I know many of you have sought additional clarity about the implications of Dell’s planned merger with EMC,” he said. “We believe our expanded relationship with Dell will be very positive for our customers and for our shareholders. Michael Dell has reached out to our major partners to assure them that VMware will continue to invest in its strong independent partner ecosystem.”

“Over time, we see significant revenue upside from up selling our full portfolio of products and services to Dell’s new equipment sales and from accessing their incredibly strong SMB go-to market engine. During 2016, we expect our bookings growth to outpace revenue growth as we build our momentum for accelerated growth in 2017 and beyond.”

There was also news that chief financial officer, chief operating officer and executive vice president Jonathan Chadwick will be leaving the company. Zane Rowe will move over from EMC to replace him, effective March 1.

As for Q42015, VMware posted revenue of $1.87bn, an increase of 10% from the year-ago period. GAAP net income for the fourth quarter was $373m, or $0.88 per diluted share, up 17% per diluted share compared to $326m, or $0.75 per diluted share in the year ago period.

Non-GAAP net income for the fourth quarter was $534m, or $1.26 per diluted share.

For the financial year, the company reported GAAP total revenues of $6.57bn, an increase of 9% from 2014. GAAP net income for 2015 was $997m, or $2.34 per diluted share, up 15% YoY.

"Our Q4 and 2015 results met or exceeded our revenue and operating margin expectations for the quarter and the year," said Chadwick. “We are seeing the results of our product transitions and have positive momentum with our newer solutions heading into 2016.” 

Shares fell by 5% in after-hours trading following the earnings report.




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