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Intel Cuts Jobs And Plans Product Exits, And VMware Sparks Turnaround Hopes


This Seeking Alpha Eye on Tech newsletter looks at Intel, VMware, and Yahoo's earnings, as well as various related announcements.

Also covered: Microsoft and Amazon cloud announcements, Apple's retina MacBook refresh and reported car efforts, a 4K PlayStation 4 report, Lexmark's sale, and the EU's "science cloud" plans.

Commentary and reports regarding Facebook ad sales, eBay survey data, Apple's services efforts, the Amazon Echo, and mobile-only web usage are highlighted.

Welcome to the April 20th edition of Seeking Alpha's Eye on Tech newsletter.

Eye on Tech Coverage

  • Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN) each made fresh cloud service announcements on Tuesday.

  • Microsoft's new Azure Container Service adds to the company's efforts to grow hybrid cloud usage. New AWS offerings continue Amazon's drive to get as much as possible moved to AWS.

  • Microsoft's strategy will win over enterprises not willing to move everything to a public cloud. But the long-term payoff for Amazon's strategy appears bigger.

Noteworthy Tech News

Intel beats EPS estimates, offers light guidance, announces job cuts and CFO change, plans to exit some products - Quite the set of Tuesday afternoon announcements from Intel (NASDAQ:INTC). After stating it plans to cut up to 12K jobs (confirms a recent media report, but is still more than expected), the company said on its earnings call it's looking to exit certain product lines.

President Murthy Renduchintala, hired only last fall and reportedly the author of a memo criticizing Intel's execution and calling for changes in its R&D approach, will give CEO Brian Krzanich a proposal on which products to keep and which to divest. There are many possibilities here.

Meanwhile, Intel strongly hints many of its job cuts will hit the Client Computing Group (PC/mobile CPUs) as it contends with weak PC sales and tries to further cut mobile losses. And the company's decision to move CFO Stacy Smith to a new role covering manufacturing, sales, and operations is fueling speculation Smith is in line to succeed Brian Krzanich as CEO.

Intel's actual earnings release was a mixed bag. Q1 EPS topped estimates with the help of gross margin strength and a low tax rate, and rising PC CPU ASPs helped offset soft PC demand. In addition, with desktop and notebook CPUs volumes down just 4% and 2% Y/Y respectively (Gartner/IDC estimate PC sales were down more sharply), it looks like Intel grabbed more share from AMD Inc. (NASDAQ:AMD), even after accounting for an extra week. IoT Group (embedded CPU) and security sales were also strong points, rising 22% and 12%, respectively.

On the other hand, Q2 guidance was below consensus and full-year guidance slightly cut. In addition, Data Center Group (DCG - server CPU division) sales rose only 9% Y/Y, once more missing Intel's 15% 2014-2018 CAGR target. On the call, Intel noted cloud and telecom DCG strength was offset by enterprise softness (partly the result of cloud adoption hurting traditional IT spend). The company expects to see "double-digit" 2016 DCG growth. Also: Intel's flash memory ops (broken out for the first time) saw a 6% revenue decline and recorded a $95M op. loss; industry price pressure is blamed.

VMware jumps on Q1 beat, strong Q2 guidance, $1.2B buyback - Much like IBM, VMware (NYSE:VMW) is trying to offset declines in traditional businesses vulnerable to cloud adoption by investing in several growth areas. Unlike IBM, the market is giving a thumbs-up to the company's latest update on its turnaround efforts. The server virtualization giant beat Q1 estimates and provided strong Q2 guidance on its earnings slides: Revenue of $1.66B-1.71B (+4%-7% Y/Y) and EPS of $0.94-0.97, versus a consensus of $1.66B and $0.94. Full-year guidance is in line.

The company's Compute (server virtualization) license bookings, hurt by cloud adoption, container adoption, and competition, remain weak, dropping 10% Y/Y in Q1. And management software license bookings grew at a modest mid-single digit clip. But end-user computing (PC virtualization/enterprise mobility) license bookings grew at a mid-teens clip, NSX (networking virtualization) grew over 100%, and VSAN (storage virtualization) over 200%. NSX, which is shaping up to be a thorn in Cisco's (NASDAQ:CSCO) side, now has over 1,400 paid customers, up ~200 Q/Q.

Yahoo comments on strategic review, releases earnings along the way - "[W]e made...