VMware (VMW) Shares Drop 21% on Weak Outlook

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					Robert DeFrancesco’s
TechStockProspector.com
January 29, 2013


VMware (VMW) Shares Drop 21% on Weak Outlook
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Here’s a toxic mix for investors: slowing growth and a high valuation. Today, this
combo hit shares of VMware (VMW, $77.14), a provider of enterprise virtualization
solutions. The stock fell more than 21% and hit a new 52-week low on massive
volume of 27.7 million shares, 15x average daily volume.

The main negative here is management guided 2013 license revenue growth to a
range of 8% to 11%, down from 13% growth in 2012. There were problems evident
in the Q4 numbers, particularly the fact that U.S. bookings fell short of expectations.
VMware’s weaker than expected transactional business, which flows through the
channel, is troubling as well.
For Q1, VMware guided revenue to a range of $1.17 billion to $1.19 billion, below
the consensus estimate of $1.25 billion. The license revenue guidance ($480 million
to $490 million) was surprisingly conservative, representing an 18.7% sequential
decline at the midrange.

Nomura thinks competition from Microsoft and Oracle is hurting pricing in
virtualization software. Many Wall Street firms downgraded VMware stock because
of concerns about slowing growth. With earnings estimates coming in, VMware
shares will need to find a new base at a lower valuation. The stock is down 35%
from its 52-week high of $118.79.

But Barclays believes the pullback represents a buying opportunity. The firm has a
lofty price target of $120. Barclays says vCloud metrics are healthy and looks for
license revenue growth to accelerate in the second half of the year. FBR Capital
agrees (it has a price target of $115), saying the company will benefit from “major
growth tailwinds” in 2H involving large contract renewals and product cycles.

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Tech-Stock Prospector Managing Editor Rob DeFrancesco has more than 20
years of experience covering the tech sector. He is a former senior writer with
Louis Rukeyser’s Wall Street.

TechStockProspector.com, launched in 2003, is an investment-research service
focused primarily on the networking, storage, security, wireless and software
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Description: With VMware shares hitting a new 52-week low, will buyers step in?