VMware Q1 Revenue Easily Beats the Street

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The company predicted that revenue would rise about 50 percent this year, and Chief Executive Diane Greene said she expects growth to continue at that rate "well beyond 2008."

"Our product suite has a very high ROI (return on investment)," Greene said on a conference call with analysts. "That puts us in a really good position for getting wallet share as the economy gets more uncertain."

Gains were driven by demand from large enterprises standardizing on the VMware platform and an increase in the number of smaller transactions delivered through VMware channel partners.

Other quarter highlights included new OEM agreements with Sun Microsystems, Dell, Fujitsu-Siemens Computers, Hewlett-Packard and IBM in which the industry heavy hitters agreed to embed VMware ESX 3i software in the companies' servers.

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In addition, VMware said it was making major enhancements to its channel partner programs to help over 13,000 indirect channel partners reselling VMware to expand their virtualization practices and drive new customer adoption

VMware reported first quarter revenue of were $438.2 million, an increase of 69 percent compared to $258.7 million in the year ago period. Analysts polled by Thomson Financial expected the Palo Alto, Calif.-based virtualization giant to turn in $422.4 million in profit, and profit excluding certain items, were 22 cents per share, in line with expectations.

Revenue from licenses was $294 million, up 75 percent from $170 million compared to the same period last year, and revenue from services climbed 62 percent to $144.2 million, up from $89 million in first quarter 2007.

International revenues increased 74 percent thanks in part to triple-digit business growth across Australia and emerging markets including Brazil, China, India and Russia.

First quarter net income climbed nearly 5 percent to $43 million or 11 cents per share, versus $41 million or 12 cents per share in the same period a year ago.

VMware was a tech darling on Wall Street in August 2007, when it launched its IPO, with an initial share priced at $29. Shares later hit a high of $124.83, but sank 34 percent in just a single day after it disappointed investors with fourth quarter revenue of $412 million, well below the Wall Street estimate of $417.4 million.

Most of Wall Street quickly cut stock ratings and seemed especially concerned about increasing competition in the virtualization sector, in which VMware has an 80 percent share of, according to estimates. Microsoft has been generating buzz about Hyper-V, its virtualization hypervisor which is now in beta, and slated for an August release.

However, some vendors have already criticized the product for lacking platform features such as resource management and memory over commitment. Other smaller, but strong competitors in the market include Citrix Systems, which acquired virtualization software provider XenSource last year, and Virtual Iron.

"Many customers suggested they were unlikely to switch from VMware to Hyper-V at any price, since Hyper-V lacked virtual machine mobility as well as other higher-level features such as disaster recovery," said Wachovia analyst Phil Rueppel in an April 1 research note.

In March, Bogomil Balkansky, VMware's senior director product marketing discussed the company's market leading position.

"VMware has validated this market has proven that virtualization is here to stay," said Balkansky. "We feel that we're well positioned -- we have pretty solid track record -- our products have been on the market since 2001 and we have the benefit of years of experience. So, we've set a pretty high bar for dependability and maturity."

The company has reiterated its guidance of 2008 revenue growth of approximately 50 percent in 2008 versus 2007. VMware forecasted that in second quarter 2008, it expects revenues to climb roughly 55 percent compared to the same period a year ago.

As of 6:17 p.m. EST, VMware stock was up 14.8 percent at $66.60 per share in after-hours trading.