VMware revenue beats estimates, but shares dip on sales delays

By Sruthi Ramakrishnan

(Reuters) - Virtualization software maker VMware Inc reported better-than-expected first-quarter revenue and forecast current-quarter revenue largely above analysts' average estimate as more customers opt for its cloud infrastructure services.

However, the company's shares slipped more than 6 percent in extended trading after it acknowledged a delay in closing some of its enterprise license agreements (ELAs) in the first quarter as customers looked to sign expanded deals.

VMware has not lost any of those deals to competitors, Chief Operating Officer Carl Eschenbach said on a conference call with analysts.

"We're seeing size and scope of our ELAs continue to grow as customers look to incorporate all of our products and even some of our new products... we're just in much deeper conversations with our customers," he said.

While ELA activity was strong in the first quarter, bullish investors may have been hoping for more, FBR Capital Markets analyst Daniel Ives said.

VMware, in which data storage equipment maker EMC Corp holds an 80 percent stake, forecast current-quarter revenue of $1.43 billion to $1.47 billion. Analysts on average were expecting revenue of $1.44 billion, according to Thomson Reuters I/B/E/S.

"We're off to a solid start in Q2 and have already closed a number of ELAs in April," Eschenbach said.

License revenue rose about 15 percent, to $561 million, in the quarter ended March 31. Long-term license agreements, including maintenance and support, make up a quarter to a third of VMware's sales.

Virtualization software enables the creation of a virtual machine that acts like a real computer with an operating system, helping the company's clients use server and storage space more efficiently and reduce IT costs.

The company also said there was strong demand for its vCloud software suite, which helps virtualize networks and associated security services along with server and storage space, with about half the enterprise license deals signed in the first quarter including the product.

VMware's net income rose to $199 million, or 46 cents per share, in the first quarter ended March 31, from $173 million, or 40 cents per share, a year earlier.

Excluding items, the company earned 80 cents per share.

Revenue rose to $1.36 billion from 1.19 billion a year earlier.

Analysts on average expected earnings of 79 cents per share on revenue of $1.35 billion, according to Thomson Reuters I/B/E/S.

VMware shares, which have risen 43 percent in the last year, fell 5.7 percent to $99.12 in extended trading on Tuesday. They closed at $105.15 on the New York Stock Exchange.

(Reporting by Supantha Mukherjee and Sruthi Ramakrishnan in Bangalore; Editing by Simon Jennings)