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UPDATE 1-VMware profit beats estimates as licensing revenue jumps

Monday, 21 Oct 2013 | 4:52 PM ET

* Third-qtr adjusted earnings $0.84/share vs est $0.82

* Revenue $1.29 bln vs est $1.29 bln

* Shares up 4 pct in extended trading

Oct 21 (Reuters) - Cloud software maker VMware Inc reported a higher-than-expected quarterly profit as licensing revenue rose 15 percent, sending its shares higher in extended trading.

VMware, controlled by data storage equipment maker EMC Corp , sells virtualization software, which enables the creation of a virtual machine that acts like a real computer with an operating system. This helps companies use server and storage space more efficiently and reduce IT costs.

"The strength in the quarter was licenses, they had a very good license quarter and that's kind of front and center for investors," FBR Capital Markets analyst Daniel Ives said.

"It seems the company is poised to see a nice reacceleration in license revenue heading into 2014," he said.

VMware's shares were up 4 percent at $86.18 in extended trading.

VMware raised the high end of its full-year revenue forecast range in July to $5.26 billion from $5.24 billion, saying federal government demand and enterprise deals were likely to pick up in the second half.

Over the last year, the company has been renewing its enterprise licensing contracts at a higher rate and adding more enterprise customers, Mizuho Securities USA analyst Abhey Lamba wrote in a pre-earnings note.

Long-term license agreements including maintenance and support make up a quarter to one third of VMware's sales.

VMware said third-quarter net income rose to $261 million, or 60 cents per share, from $157 million, or 36 cents per share, a year earlier.

Excluding items, the company earned 84 cents per share.

Total revenue rose 14 percent to $1.29 billion.

Analysts on average had expected earnings of 82 cents per share on revenue of $1.29 billion, according to Thomson Reuters I/B/E/S.

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