VMware Stock Slides on Sales Miss

Despite enjoying a 7% sales hike in a tough economy, software specialist VMware's(VMW Quote) first-quarter revenue has come in below analysts' expectations.

The virtualization trailblazer reported sales of $470.3 million, up from $438 million in the same period last year but below Wall Street's revenue forecast of $474.38 million.

News of the firm's revenue miss did little for VMware's shares. The stock plummeted $3.61, or 11.09% to $28.94 in afterhours trading.

Despite its sales miss, VMware grew its profit significantly during the first quarter. The Palo Alto, Calif.-based firm reported earnings of 18 cents on net income of $69.9 million, up from 11 cents and $43.1 million in the same period last year. Excluding charges, VMware's earnings were 25 cents a share on net income of $99.7 million, compared to 22 cents and $88.5 million in the year-ago quarter. Analysts surveyed by Thomson Financial had expected earnings of 20 cents.

"We delivered sold results for the first quarter despite a very challenging economic climate," said Paul Maritz, the VMware CEO, in a statement. "In an environment where customers are reducing IT purchases in order to preserve cash, we successfully managed costs while continuing to make strategic investments in our products."

VMware this week unveiled vSphere, the latest version of its software, which is aimed at companies looking to exploit cloud computing infrastructures. The new software, which will ship within the next couple of months, is being touted as a way for users to gain the flexibility of hosted cloud services within their own internal systems.

The software maker, which competes with Microsoft(MSFT Quote) and Citrix(CTXS Quote), has also clinched a deal with Cisco Systems(CSCO Quote) to run its software on the networking giant's Unified Computing System (UCS).

Virtualization, which lets users divide physical hardware into multiple "virtual" chunks, has become more popular among users looking to juggle several operating systems and applications. With companies also struggling with budget pressures, VMware and its rivals are pushing virtualization as a way for firms to reduce the amount of server and storage hardware within their data centers.

VMware shares jumped earlier this month following an upbeat note from Goldman Sachs that said that the company could benefit from users looking to save money in a tough economy. The analyst firm added the software specialist to its "Conviction Buy List," saying the stock's value could increase up to 23% over the next 12 months.