Strong Licensing, Services Sales Give VMware 2Q Boost

Strong growth in sales of all products across all geographies helped propel VMware to a strong second quarter in terms of revenue and earnings, results which were above initial expectations.

However, while VMware executives said to expect continued growth for the second half of 2010, they cautioned that the rate of that growth will not match what the company saw during the second quarter.

VMware on Tuesday reported revenue of $674 million for its second quarter of 2010, which ended June 30. That was an increase of 48 percent from the second quarter of 2009.

The company also reported earnings of $75 million, or 18 cents per share, during the second quarter. That was up 127 percent compared to the $33 million, or 8 cents per share, it reported for the second quarter of 2009.

"Business was strong across all geographies, business types, and products," said Mark Peek, VMware CFO, during the company's analyst financial conference call.

U.S. revenue for the second quarter was $334 million, an increase of 43 percent compared to the second quarter of 2009. International revenue hit $340 million, up 53 percent over last year.

Both license and services revenue showed strong growth over the second quarter of 2009. VMware reported license revenue of $324 million, up 42 percent over last year. Services revenue, which includes software maintenance and professional services, hit $350 million, up 54 percent.

However, Peek said, VMware does not expect such strong services revenue growth going forward. "Don't expect big increases in services revenue as we continue to increase our dependence on our partners," he said.

VMware added 850 people during the quarter, half of which came from acquisitions, Peek said. Current headcount is about 8,200 people, up 1,100 people from the beginning of the year. Peek said VMware expects to continue to add personnel at the same pace through the second half of the year.

VMware COO Tod Nielsen said VMware also saw a strong growth in its customer base. By the end of the first half of 2010, VMware had over 190,000 customers worldwide compared to about 170,000 at the start of the year.

Next: Looking Forward At Virtual Desktops, Cloud Security, And Finances

Nielson said that VMware's adoption of a new per-virtual machine pricing for some of its management products should provide positive results when it is implemented in September.

VMware earlier this month said that it will start charging on a per-VM basis for such products as the vCenter CapacityIQ capacity monitoring and management tool, vCenter Sight Recover Manager tool for automating disaster recover and business continuity, vCenter AppSpeed tool for application performance service level agreements, and vCenter Chargeback tool for cost measurement and analysis.

The new pricing should not have any material impact on VMware, Peek said. "We introduced per-VM pricing to help both our customers and ourselves," he said.

VMware also has high hopes for success in the virtual desktop market, especially as it gets ready to release its VMware View 4.5 sometime in the third quarter. "Yet it remains difficult to estimate at what pace customers will express interest and buy," he said.

VMware President and CEO Paul Maritz confirmed that VMware will not add a bare metal hypervisor to View 4.5 as had been expected because of customer feedback that such a capability was not yet needed.

A bare metal hypervisor would make virtual desktop PCs less dependent on the operating system.

"The challenge with a bare metal hypervisor is, how do you address the installed application base," Maritz said.

Maritz said that customers can also expect a new series of products aimed at increasing the security of cloud computing to be introduced at the VMworld 2010 conference to be held starting August 31 in San Francisco.

"We expect a full roster of announcements from us and our partners at VMworld," he said.

Looking forward, Peek said VMware expects third quarter revenue to be between $680 million and $705 million, or about 39 percent to 44 percent higher than last year's third quarter. However, he declined to provide guidance for the fourth quarter, citing uncertainties in terms of currency fluctuations and the macro-economic environment.

For all of 2010, however, Peek said VMware expects revenue to total between $2.725 billion and $2.8 billion, or up about 38 percent over 2009.