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VMware Forecasts Weak Q4 Revenue; Shares Fall

But third-quarter results beat analysts' expectations.

Software maker VMware forecast current-quarter revenue largely below Wall Street’s estimates due to a delay in the closing of a large U.S. government deal and lower bookings in Germany, Russia and Japan in the third quarter.

The company’s shares were off by about two percent in after-market trading.

“We were tracking a rather large federal (enterprise license agreement) to coincide with the government’s year-end, and this opportunity did not close in the quarter,” Chief Operating Officer Carl Eschenbach said on a post-earnings call.

VMware, which activist investor Elliott Management wants separated from parent EMC, makes software that creates a sort of virtual machine acting like a real computer within an operating system, helping to cut IT costs.

The company forecast revenue of $1.67 billion to $1.71 billion for the fourth quarter, ending Dec. 30. Analysts on average were expecting revenue of $1.71 billion, according to Thomson Reuters I/B/E/S.

“Overall, the outlook was respectable for Q4, although larger deal softness will hurt cash flow going forward,” FBR Capital Markets analyst Daniel Ives told Reuters. “VMware continues to be a mixed execution story where the market opportunity remains strong, although getting customers to sign on the dotted line is the focus of the Street.”

However, the company’s earnings in the three months ended Sept. 30 were better than expected, bucking the trend of weak results from other software makers such as IBM and SAP.

Excluding items, VMware earned 87 cents per share, above the average analysts’ estimate of 83 cents per share, according to Thomson Reuters I/B/E/S.

Total revenue rose 18 percent to $1.52 billion, above the average estimate of $1.50 billion.

License revenue rose 13 percent. Long-term license agreements, including maintenance and support, make up more than 40 percent of VMware’s revenue.

VMware’s net income fell 26 percent to $194 million due to the impact of its $1.54 billion acquisition of mobile device management software maker AirWatch earlier this year.

Elliott Management has urged data storage products maker EMC, which holds an 80 percent stake in VMware, to sell the unit or pursue other merger opportunities. EMC has said it no plans to give up its stake in VMware.

(Reporting by Soham Chatterjee in Bangalore; Editing by Savio D’Souza)

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