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VMware Falls on Reduced 2016 Guidance, Executive Shake-Up

The company confirms it has cut about 800 jobs, mostly in its cloud computing service. A bright spot: Networking.

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Shares of software company VMware fell by 5 percent in after-hours trading after the company said it expects sales and profits in the coming year below what analysts had forecast.

VMware, which makes virtualization software that companies use to make computers in their data centers run more efficiently, said it expects to post revenue between $6.8 billion and $6.9 billion, well below the $7.2 billion analysts were looking for. It also said it expects a 2016 profit of no more than $4.16 a share, below the $4.20 consensus.

The reduced guidance accompanied fourth-quarter results that were slightly ahead of the view of analysts: Earnings per share were $1.26 on revenue of $1.87 billion, both of which were slightly above forecasts.

The company confirmed reports of layoffs, saying it had eliminated about 800 jobs. While VMware didn’t spell out exactly where the cuts came, it appears that its cloud computing service vCloud Air bore the brunt of it. On a conference call, CEO Pat Gelsinger said the service will have a “narrower focus” going forward and that money invested in it already is considered “adequate for our needs.” The service competes with Amazon Web Services and Microsoft Azure. It will record restructuring charges of between $55 million and $65 million connected with the cuts.

It also said that CFO and COO Jonathan Chadwick is leaving the company. He’ll be replaced by Zane Rowe, the CFO of VMware’s majority owner, EMC, effective March 1. Rowe was previously the CFO of Continental Airlines and before that led North American sales for Apple. A new COO was not named.

A bright spot of VMware’s results was in its networking product line, where it sells software that’s meant to replace hardware like routers and switches in corporate networks. The company said that NSX bookings finished 2015 on a run rate to $600 million, which would amount to about 9 percent of VMware’s overall revenue. The NSX product line is based mainly on technology VMware got when it acquired the startup Nicira in 2012. Martin Casado, a VMware senior VP and former CTO of Nicira, shared the figures on Twitter.

VMware is sometimes described as “the company that Michael Dell is getting for free along with EMC.” When Dell closes on its proposed acquisition of EMC later this year, VMware will effectively become its subsidiary. EMC acquired VMware in 2007, then later floated a 19 percent stake in an IPO on the New York Stock Exchange.

Update: After this story was originally published we added some color on VMware’s job cuts.

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