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SEC charges VMware with hiding slowing sales from investors

Virtualization giant pays $8m to settle claims it pushed revenue into later quarter... without admitting liability

VMware misled investors about its order backlog management processes that allowed it to roll revenue into future quarters by postponing product delivery dates to customers to conceal slowing sales relative to forecasts.

This is the damning charge thrown at the virtualization linchpin by the Securities and Exchange Commission yesterday, which found the alleged jiggery-pokery began in 2019 when it was majority owned by Dell Technologies.

"VMware began delaying the delivery of license keys on some sales orders until just after quarter-end so it could recognize revenue from the corresponding licenses sales in the following quarter," claimed the SEC yesterday.

According to the Commission's order, VMware "shifted tens of millions of dollars of license sales into future quarters, building a buffer in those periods and obscuring the company's financial performance as its business slowed relative to projections in fiscal year 2020."

Although VMware had publicly stated the backlog was "managed based upon multiple considerations," said the SEC, it failed to confirm to shareholders it used the backlog to manage the "timing" of the revenue recognition.

Mark Cave, the federal agency's associate director in the Division of Enforcement, said:" As the SEC’s order finds, by making misleading statements about order management practices, VMware deprived investors of important information about its financial performance.

"Such conduct is incompatible with an issuer's disclosure obligations under the federal securities laws," he added.

The investigation by the SEC charged VMware with breaking antitrust provisions of the Securities Act of 1993 and reporting provisions of the federal securities legislation.

VMware has issued a statement saying it has agreed to settle the charge brought by the SEC.

"Under the terms of the settlement, the Company has agreed to pay a civil monetary penalty of $8 million without admitting or denying the SEC's findings, which relate to the Company's disclosures," said VMware, which has agreed to be acquired by Broadcom in a $61 billion deal it hopes will close next year.

"The SEC's findings do not include any findings that the Company failed to comply with generally accepted accounting principles. The SEC staff has confirmed that it does not intend to recommend enforcement action against any current or former VMware officers or other member of management in connection with the investigation, and this settlement concludes the matter.

"VMware believes this settlement is the right course of action for the Company and continues to be committed to operating at the highest level of integrity, including with respect to its public filings and communications with investors," it added. ®

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