VMware To Cut 900 Jobs As Outlook Disappoints, But Will Still Pursue M&A

VMware plans to cut about 900 jobs, or 7 percent of its workforce, as part of a restructuring. The company also issued cautious 2013 forecast, due to a decline in U.S. federal government bookings and continuing concerns about the sluggish economy in Europe.

The company reported on-target fourth-quarter earnings and said it expects revenue of $1.17 billion to $1.19 billion for the first quarter, an increase of 11 percent to 13 percent, but still short of the $1.25 billion estimated by analysts on average. For the full year it forecast revenue of $5.23 billion to $5.35 billion, lower than estimates of $5.42 billion.

The downturn hit other companies in the sector: smaller rival BMC Software also also disappointed investors with its 2013 outlook due to lower license bookings at its enterprise services management and mainframe service management business.

VMware CEO Pat Gelsinger told analysts during the company’s earnings call that it will streamline and eliminate jobs from low-priority areas, like VMware’s SlideRocket presentation software, in order to focus on more popular products, with an emphasis on geographies, product groups and operations. VMware estimates that the job cuts will cost the company between $70 million and $80 million, while consolidation of some business lines will result in a charge of between $20 million and $30 million.

COO Carl Eschenbach added that VMware intends to go on a hiring kick as it adds new people to priority divisions, saying that by the end of 2013 VMware’s total employee headcount will actually be up by about 1,000 people.

The company will also continue to actively pursue M&A opportunities. Last week, it invested $30 million in Puppet Labs, a data center automation company, as the two firms formed a strategic partnership for delivering IT management solutions that will allow customers to take advantage of virtualization and cloud in heterogeneous, multi-vendor IT environments. And last year VMware acquired data center operations startup Nicira Inc for $1.2 billion.

VMware is a publicly traded division of data storage maker EMC Corp, and the two companies say they plan to give more details about their “Pivotal Initiative,” or plan to merge the two company’s data analystics and coule application assets. VMware’s 2013 outlook did not include any guidance about the intitiative, but Chadwick said more details will be revealed on March 13 at the EMC VMware Strategic Forum.