VMware's earnings and revenue fall short of Wall Street's expectations

CLOUD

VMware Inc.’s stock fell slightly in after-hours trading today after it reported lower-than-expected earnings and revenue in what is likely to be one of its final earnings calls as a publicly traded company.

The virtualization software giant reported third-quarter earnings before certain costs such as stock compensation of $1.47 per share, below Wall Street’s estimate of $1.58 per share. As for revenue, the company delivered $3.21 billion, up just 1% from a year ago and below the consensus estimate of $3.37 billion. That resulted in a net profit for the period of $231 million, some way below the $398 million in profit it posted one year earlier.

The earnings report has attracted less interest than usual because VMware is in the process of being acquired by the chipmaker Broadcom Inc. in a blockbuster $61.2 billion deal that’s expected to close within the next year. The exact closing date for the deal isn’t known/ Broadcom says it hopes to get everything done and dusted within its fiscal year 2023, which began in November.

Regulators could yet throw a spanner in the works, though, with reports just yesterday saying the acquisition is being investigated by the U.K.’s competition regulator, the Competition and Markets Authority. The investigation seeks to understand if there is any risk that the deal might substantially reduce competition within the markets VMware operates in, and could take several months to complete.

Most analysts agree that the acquisition will likely go ahead as planned. When it happens, Broadcom has said, it will combine VMware with the assets of its own software division. That business will then operate under the VMware brand.

Despite its current pedestrian growth, it’s expected that VMware will be a useful acquisition for Broadcom. The company has become synonymous with virtualization software, which enables applications and other computing workloads to be consolidated onto a smaller number of servers. In this way, servers can run multiple applications at once, increasing data center efficiency.

VMware is by far and away the most dominant player in the virtualization software market, though it has faced some challenges with the rise of cloud computing infrastructure providers such as Amazon Web Services Inc. and Microsoft Azure. VMware’s software is firmly rooted in on-premises data centers, though the company has been trying to pivot toward the cloud, sometimes through partnerships with the likes of AWS and Microsoft.

With the acquisition pending, VMware executives chose not to host a conference call in relation to today’s earnings results, which is a common practice for companies waiting to be acquired.

VMware Chief Executive Raghu Raghuram (pictured) said in a statement that the company met its own expectations with its third-quarter results.

“This past quarter we demonstrated that our innovation engine is flourishing, as we unveiled many new offerings across our portfolio, including VMware vSphere 8, VMware vSAN 8 and VMware Aria,” he said. “We remain committed to and engaged in helping customers transform their businesses and unlock the full potential of multicloud.”

VMware also provided a breakdown of its earnings, saying that the combination of subscription, software-as-a-service and license revenue came to $1.61 billion, up 5% from a year earlier. Subscription and SaaS amounted to 31% of its total revenue, at $988 million, up 20% from a year ago. The company also reported subscription and SaaS annualized recurring revenue of $4.1 billion, up 24%.

During the quarter, VMware held its annual user conference VMware Explore, where it outlined a multicloud future for its customers with the announcement of numerous new offerings that extend its collaborations with Microsoft Azure and AWS in areas such as workload deployment. It also announced new features for VMware Tanzu, its application and Kubernetes management platform, and new data processing units to power the latest release of vSphere 8, its main virtualization offering.

In an interview with theCUBE at the conference, SiliconANGLE Media’s mobile livestreaming studio, Raghuram discussed how VMware’s early bets on multicloud were paying off for the company, as well as its prospects once it becomes a part of Broadcom:

Photo: SiliconANGLE