VMWare Beats Expectations With $1.02 EPS, $1.67B In Revenue

At a time when there are a lot of questions about the company’s future, VMWare beat analyst expectations with $1.02 in non-GAAP earnings per share compared to expectations of $1. The company reported $1.67 billion in revenue, up 14 percent year-over-year, beating expectations of $1.66 billion.

The numbers were about in line with what the company reported when the Dell/EMC deal was announced.

But here’s an interesting part of the earnings release: VMWare said it would combine the company’s cloud capabilities with EMC’s under the brand Virtustream, which will be jointly owned by VMWare and EMC. Virtustream’s financial results are going to be consolidated into VMWare’s financial statements — and the companies said it was expected to grow into a multibillion-dollar business in the next several years.

Both companies have been making a push for the cloud in recent years, and this offers a way for both companies to have a pure cloud company as a resource. EMC purchased Virtustream for $1.2 billion in May this year.

Here’s the crux of the Dell/VMWare issue: Dell is acquiring EMC for $67 billion in a deal that will take the company private, and part of that will be Dell acquiring a big stake in VMWare — which the company will continue to operate as an independent company, according to a statement from Michael Dell. Part of it is traded publicly, and the stock fell 8 percent after the Dell/EMC deal was announced. Following this earnings report, shares of VMWare were about flat.

“We are very optimistic about the long term value to VMware of the Dell and EMC plans to merge and the formation of the Cloud Services Business,” CEO Pat Gelsinger said as part of the earnings release. “VMware’s mission and strategy remain unchanged as we continue to deliver extraordinary value to our customers through the power of disruptive innovation.”

VMWare’s faced a lot of challenges for its virtual machine business as many businesses migrate their operations to the cloud. In the past year, the company’s stock has fallen more than 16 percent. The Dell/EMC proposal includes offering VMWare shares that would be issued to EMC shareholders. In spite of Dell’s pronouncements, it’s possible that Dell will sell part of its stake in VMware to finance this deal.

In a blog post, Michael Dell said he promised not to basically not mess with VMWare, which will continue to operate as an independent company that won’t be tied to Dell’s products. (Of course, these things can always change.) Dell referred to VMWare as the “crown jewel” of the EMC federation.

“We intend for VMWare to remain an independent public company,” Dell wrote in a blog post. “Further, we believe it is very important to maintain VMWare’s successful business model supporting an open and independent ecosystem. We do not plan to do anything proprietary with VMWare as regards to Dell or EMC, nor place any limitations on VMWare’s ability to partner with any other company.”