Software maker VMware to cut 800 jobs, sees weak 2016

By Sai Sachin R and Sarah McBride

(Reuters) - VMware Inc forecast 2016 revenue and profit below analysts' expectations, suggesting the software maker's strong growth in new businesses was not enough to compensate for weakness in its traditional server-virtualization software.

The Palo Alto, California-based company also said it would cut about 800 jobs. At the same time, VMWare, whose parent, EMC Corp is being acquired by Dell Inc [DI.UL], appointed EMC Chief Financial Officer Zane Rowe as its finance chief, replacing Jonathan Chadwick.

VMWare, like many technology providers, is struggling to keep pace with its customers' efforts to move key computing infrastructure to the cloud, meaning remote data centers.

 

VMware shares fell 5 percent in extended trading on Tuesday, while EMC shares declined 1.4 percent. The company, whose flagship product helps customers cut costs by running multiple operating systems on a single server, has been hurt by slowing economic growth in markets outside the United States, which account for nearly half of its revenue. In particular, it cited weak bookings for its software in China, Russia, and Brazil.

But the company noted some bright spots in newer businesses, such as NSX, which makes networking more efficient. That business is on track to generate $600 million annually, VMWare said, up from $200 million a year ago.

Customers like NSX in part because it provides an additional sever-by-server layer of security, on top of precautions at the data centre overall, said Martin Casado, general manager for networking and security at VMWare.

"If someone gets over the wall, you still have a guard at every house," he said. "It can limit the ability of the breach to grow."

The company forecast revenue of $6.79 billion-$6.94 billion and an adjusted profit of $4.07-$4.16 per share for 2016.

Analysts on average were expecting revenue of $7.21 billion and earnings of $4.20 per share, according to Thomson Reuters I/B/E/S.

VMware, which had nearly 19,200 employees at the end of 2015, said it would take a charge of $55 million-$65 million in the first half of this year related to the job cuts.

VMware's lackluster forecast overshadowed strong fourth-quarter results.

The company's net income rose 14.4 percent to $373 million, or 88 cents per share, in the quarter ended Dec. 31, helped by a 12.6 percent jump in its services revenue.

Revenue increased 9.7 percent to $1.87 billion, topping the average analyst estimate of $1.85 billion.

Excluding items, VMware earned $1.26 per share, beating analysts' expectations by a cent.

(Reporting by Sai Sachin R in Bengaluru and Sarah McBride in San Francisco; Additional reporting by Sruthi Shankar in Bengaluru; Editing by Kirti Pandey, Diane Craft)