William L. Moore
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William L. Moore in Insider trading,

"Key Concerns" Make Duetsche Wary of VMWare

VMware, Inc.  is scheduled to report its 1Q16 results on April 19. Deutsche Bank’s Karl Keirstead maintained a Hold rating for the company, with a price target of $55. The analyst expressed concern regarding the CIO’s comments around IT infrastructure spending remaining under pressure through 2016 as well as the high pace of executive departures over the past several months.

“We are less comfortable with VMW’s guidance and our own estimates as we approach the 1Q16 report date,” analyst Karl Keirstead wrote. He added, however, that the concerns did not result from company-specific channel checks, rather on “feedback from corporate CIO’s that IT infrastructure spending will remain under pressure throughout 2016 as well as the pronounced pace of executive departures from VMW over the last several months.”

Key Concerns

Keirstead mentioned that although VMware had reported surprisingly robust revenue growth of 13 percent in constant currency terms for 2015, there were concerns around the performance in 2016. He enumerated the key concerns as:

  • The pace of recent executive departures
  • Weak core infrastructure spending and the waning of data center modernization effort that had lifted the vSphere business through 2015
  • Lack of any compelling cloud story
  • Overhang caused by the deal between Dell and EMC Corporation EMC
  • Competition from Microsoft Corporation MSFT Hyper-V and open source KVM

“In our view, there is a risk that VMW needs to go through a transformation that could push out the recovery/inflection point to 2017/2018,” the analyst wrote.