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UPDATE 1-VMware profit narrowly beats as license revenue rises

Tuesday, 28 Jan 2014 | 5:59 PM ET

Jan 28 (Reuters) - Virtualization software maker VMware Inc reported a slightly better-than-expected quarterly profit, helped by higher revenue from license sales.

The company's shares dropped 2 percent to $92.95 in extended trading, in what one analyst described as a "knee-jerk reaction".

Expectations may have been elevated after the company preannounced fourth-quarter revenue and a first-quarter forecast last week that largely beat expectations, FBR Capital Markets analyst Daniel Ives said.

"I think this is an example of some investors ... splitting hairs here in terms of the company's bookings," Ives said.

"I would still call it ... extremely solid bookings and overall quarter and guidance," Ives said.

VMware reported on Tuesday unearned revenue of $4.09 billion as of Dec. 31, up from $3.46 billion in the year-earlier period and $3.64 billion in the third quarter.

The company prereported some of its results last week when it announced that it would buy privately held mobile security company AirWatch for $1.54 billion to tap into rising demand from companies to secure the smartphones and tablets used by employees.

VMware had then forecast first-quarter revenue of $1.33 bilion-$1.37 billion. Analysts on average were expecting $1.34 billion.

In a call with analysts on Tuesday, VMware reaffirmed its full-year revenue forecast of $5.94-$6.1 billion, largely below the average analyst estimate of $5.95 billion.

VMware's virtualization software 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 company's license revenue grew 15 percent to $687 million in the fourth quarter. Long-term license agreements, including maintenance and support, make up a quarter to one third of VMware's sales.

"I would give it an 'A', it is an 'A' quarter," Ives said of the fourth-quarter results.

Net income rose to $335 million, or 77 cents per share, in the fourth quarter, from $206 million, or 47 cents per share, a year earlier.

Excluding items, the company earned $1.01 per share.

Analysts on average had expected earnings of $1.00 per share, according to Thomson Reuters I/B/E/S.

The company had preannounced fourth-quarter revenue of $1.48 billion last week, above the average estimate of $1.47 billion.

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