VMware Realigns Businesses, Reports Record Profits

Virtualization and cloud kingpin VMware on Monday said it is realigning its resources with plans to lay off about 900 employees in 2013 related to non-strategic assets while growing headcount for the year by 1,000 people thanks to investments in strategic business areas.

The company also reported record annual revenue and strong earnings for fiscal 2012 and said it expects significant growth in both revenue and earnings for 2013.

However, VMware's expected 2013 growth did not reach the expectations of investors who pummeled the company's share prices in after-hours trading.

[Related: Gelsinger Taking Over VMware As Storage, Virtualization Come To A Crossroads ]

VMware CEO Pat Gelsinger said during the company's financial analyst call that VMware will be taking advantage of three growth patterns in 2013, including the rise of the software-defined data center, the increasing utilization of hybrid cloud computing and the growth of end-user computing.

"As we enter Q1, we are focusing our emphasis on these areas," Gelsinger said.

That is resulting in a two-tier realignment currently going on within the company, Gelsinger said.

The first is a restructuring of VMware's portfolio, which includes the movement of non-core cloud assets into the Pivotal Initiative, a new organization formed by the combination of VMware's non-core technology for building platform-as-a-service (PaaS) offerings with VMware parent company EMC's big data technology.

EMC and VMware plan to provide more details about the Pivotal Initiative at the two companies' Strategic Forum, slated to be held on March 13 in New York, Gelsinger said.

The second tier is a realignment of resources, which includes shifting the company's personnel into strategic areas while cutting personnel in less-strategic areas, he said.

"Our aspirational goal is to become the greatest infrastructure software company of this decade," he said.

The alignment has already started. The company in December formed the Network and Security Virtualization group to help drive demand for next-generation networking solutions as part of the software-defined network (SDN). Stephen Mullaney, the former CEO of SDN leader Nicira, which VMware acquired in 2012, was appointed vice president and general manager of that new organization.

Jonathan Chadwick, VMware CFO and executive vice president, said VMware will lay off about 900 people in 2013 as it moves away from certain products such as its SlideRocket presentation software, which customers see as non-strategic to their needs.

However, Chadwick said, the company expects headcount to increase by 1,000 people during the year, excluding the personnel moving to the Pivotal Initiative.

NEXT: Record Revenue, Strong Earnings

For its fiscal fourth quarter, which ended December 31, VMware reported revenue of $1.3 billion, up 22 percent from the $1.1 billion the company reported in its fourth quarter of 2011.

Of that revenue amount, new licenses accounted for $597 million, up 16 percent over last year, while services, including software maintenance and professional services, accounted for $696 million, up 27 percent over last year.

VMware also reported GAAP income of $206 million, or 47 cents per share, up from $200 million, or 46 cents per share, during the fourth quarter. On a non-GAAP basis, the company reported income of $349 million for the quarter, or 81 cents per share, up year-over-year from $266 million, or 62 cents per share.

For all of 2012, VMware reported revenue of $4.6 billion, up 22 percent from last year's $3.8 billion. New license revenue of $2.1 billion accounted for 45.3 percent of total revenue compared to 48.9 percent in 2011.

GAAP income for all of 2012 was reported as $746 million, or $1.72 per share, up from last year's $724 million or $1.68 per share. On a non-GAAP basis, income for 2012 was $1.2 billion, or $2.85 per share, up from $936 million, or $2.17 per share, in 2011.

Carl Eschenbach, president and COO of VMware, said that VMware made a total of six acquisitions during 2013, including analytics software firm Info Tech Health Check (iTHC), big data analytics technology developer Cetas, desktop virtualization startup Wanova, cloud and application provisioning software developer DynamicOps, analytics and log management developer Pattern Insight, and SDN leader Nicira.

On the partner side, Eschenbach said that, while enterprise license agreements (ELAs) with customers totaled 33 percent of total bookings and hit a record high, the transactions done through channel partners in 2012 were not a strong as expected. For 2013, VMware is working on programs for channel partners to be better able to increase their customer transactions.

VMware will also be working with cloud partners in 2013 to expand opportunities for both the vendor and the partners, he said.

NEXT: Strong Growth Expected, But Not Enough For Investors

For 2013, VMware expects total revenue in the range of $5.23 billion and $5.35 billion, or up 14 percent to 16 percent over 2012. Of that, annual license revenue is expected to grow between 8 percent and 11 percent.

First quarter 2013 total revenue is expected to be in the range of $1.17 billion to $1.19 billion, up 11 percent to 13 percent over 2012.

However, financial analysts had been expecting first quarter 2013 revenue of $1.25 billion, according to Forbes.

As a result, investors engaged in a huge sell off of VMware shares in after-hours trading, driving the company's stock price from its market close of $98.32 to as low as $83.52 before it recovered slightly.

PUBLISHED JAN. 28, 2013