By Erin McCarthy
VMware Inc. warned it expects its operating margins to decline
following its acquisition of AirWatch later this year.
Shares slipped about 5% in after-hours trading as the
virtualization-software maker estimated that margins in its second
quarter, ending in June, would decline 1.5% to 2% sequentially.
VMware unveiled last week a $1.54 billion deal to buy closely
held AirWatch, the software company's first major move to exploit
the mobile-device boom and its largest acquisition so far. AirWatch
helps companies manage and deploy smartphones, tablets and the
software that runs on them. The deal is expected to close late in
the first quarter.
"There are some concerns about them saying second-quarter
margins are going to go down," said Abhey Lamba, senior technology
analyst at Mizuho Securities.
In addition, estimates that the billings growth rate was slower
than the pace of revenue growth was a concern for some analysts,
said Matthew Hedberg, analyst at RBC Capital Markets, LLC.
The warning came as VMware posted earnings that beat market
estimates.
VMware has sought to increase bookings by bundling its core
virtualization software, an important component of the
information-technology sector's shift to cloud computing, with new
offerings.
VMware, which is majority-owned by storage vendor EMC Corp.,
reported a profit of $335 million, or 77 cents a share, up from
$205.8 million, or 47 cents a share, a year earlier. Excluding
special items, per-share earnings improved to $1.01 from 81 cents.
Analysts surveyed by Thomson Reuters had forecast a per-share
profit of $1.
Revenue increased 15% to $1.48 billion, in line with the
company's recent forecast.
Operating margin widened to 25% from 19.5%.
Revenue from services--which include subscriptions, consulting
and support--grew 14%, while license revenue rose 15%.
Through the close, the company's stock was up 15% in the past
three months.
Write to Erin McCarthy at erin.mccarthy@wsj.com
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