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Originally published Monday, January 28, 2013 at 4:38 PM

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VMware sales forecast misses estimates

The software company, facing growing competition from Microsoft and Oracle, plans to cut 900 jobs.

Bloomberg News

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VMware, the biggest maker of software that enables computers to run multiple operating systems, forecast sales that missed estimates amid cutbacks from corporate customers. Shares in the company tumbled Monday.

First-quarter revenue will be $1.17 billion to $1.19 billion, the Palo Alto, Calif., company said in a statement. That fell short of the analysts’ average estimate of $1.25 billion, according to data compiled by Bloomberg.

The company will cut 900 jobs, exit some lines of business and consolidate facilities, resulting in charges of $90 million to $110 million, according to a filing Monday.

VMware said it’s facing a tougher first half because of a weak economic environment and sluggish federal government demand, which affected bookings, a measure of future sales.

Additionally, an expected increase in contract renewals won’t occur until later in the year, the company said on a conference call with investors.

“The company’s guidance was clearly disappointing,” Abhey Lamba, an analyst at Mizuho Securities USA, wrote in a note to clients. Lamba rates the shares “buy” with a $99 price target.

VMware declined as much as 14 percent in extended trading. The shares fell less than 1 percent to $98.32 at the close of regular trading Monday, for a gain of 6.6 percent in the past 12 months.

Even with the job cuts, the company is still hiring and plans to end the year with head count up by about 1,000, Chief Executive Pat Gelsinger said on the conference call.

Fourth-quarter profit, excluding some items, was 81 cents a share, exceeding the average estimate of 78 cents, according to data compiled by Bloomberg. Sales rose 22 percent to $1.29 billion, compared with a $1.28 billion average projection.

VMware, already the biggest provider of virtualization software, is signing more agreements with smaller businesses because many large corporations already have its software, said Rick Sherlund, an analyst at Nomura Holdings. Competition from Microsoft and Oracle also may have forced VMware to reduce prices, he said.

“Growth has been slowing,” Sherlund wrote in a research report. “Microsoft is having some impact on pricing, more so than any significant shift in market share so far.”

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