VMware Q4 Revenue Up On Maintenance, Services Fees

VMware said partnerships with technology partners and with the channel continue to help drive the company's business as customers look to VMware to help them move to cloud computing.

VMware said revenue for its fourth quarter of 2009, which ended Dec. 31, hit $608 million, an increase of 18 percent compared to the $515 million it reported in the fourth quarter of 2008.

However, a strong 52 percent growth in maintenance and services revenue masked a 3.5 percent drop in virtualization software license revenue during the quarter.

For the quarter, 50 percent of VMware revenue came from license sales, while software maintenance accounted for 40.5 percent and professional services accounted for 9.5 percent. This compares to license sales accounting for more than 61 percent of total revenue in the fourth quarter of 2008.

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VMware also reported income of $56 million, or 14 cents per share, during the fourth quarter of 2009, down about half from the $111 million, or 29 cents per share, it reported for the same period last year.

For all of 2009, VMware reported revenue of $2.0 billion, up about 5 percent from the $1.9 billion it reported for 2008. The company reported income of $197 million, or 49 cents per share, for all of 2009, down significantly from the $290 million, or 73 cents per share, it reported the year before.

Mark Peek, VMware CFO, said his company had record revenue and record non-GAAP profit in the fourth quarter thanks in large part to customers upgrading to VMware's new vSphere 4 Plus virtualization platform. He cited success in this part of the business was due to a strong field sales and channel partner sales.

It was that upgrade that led to the strong growth in maintenance revenue compared to a slight drop in new license revenue, Peek said.

Peek also said VMware expects the first quarter of 2010 to show a normal revenue balance, with revenue expected to be between $580 million and $600 million. That includes a single-digit software license growth.

Margins, Peek said, are expected in 2010 to return to the 25 percent rate experienced a couple years ago. "We have successfully managed through the worst of the 'Great Recession,'" he said.

Peek said that, with the worst of the economic downturn apparently over, it is easier to predict customer budgets for the first half of 2010 than it was in 2009 when so many companies were flying blind.

Looking forward, Paul Maritz, VMware president and CEO, said his company's results will be helped as customers look to VMware for aid in adopting private cloud computing to more efficiently utilize IT resources for inward-facing customers, and eventually start to reach out to public cloud computing.

"We intend to be one of the major steps in cloud computing technologies," Maritz said.

During the analyst question-and-answer period of VMware's financial conference call, many of the remarks turned to VMware's competitiveness and to how it works with partners.

Tod Nielsen, VMware COO, said that VMware is not experiencing a lot of competition from Microsoft, which launched its Hyper-V virtualization software after the release of its Windows Server 2008 operating system.

Nielsen said Microsoft has not been a factor in VMware's U.S. business. However, he said Microsoft has been putting new feet on the street internationally, which is consistent with that company's "playbook."

VMware's proposed acquisition of Zimbra raised questions about whether VMware might end up competing with its partners.

Zimbra is the developer of the open-source Zimbra Collaboration Suite, which includes applications to coordinate, manage and share e-mails from multiple vendors, including Microsoft's Outlook, in a single interface; perform group scheduling; and handle desktop and mobile device synchronization.

The acquisition should not be seen as VMware's competing with its partners, Maritz said.

"The majority of our partners and OEMs are not in the application business," he said. "It certainly puts us in competition with some in the industry. And those are companies we are already in competition with."

Acquisitions in general help VMware in two ways, Maritz said.

The first is to enable the company to grow in terms of helping customers build internal compute clouds and move to work with public clouds. Maritz said that organic development is still most important for this goal, with acquisitions helping.

The second is to help move applications to the cloud, a goal that is helped by both organic growth and acquisitions, he said.

As VMware grows in the future, partners will play an increasingly important role, Maritz said.

"We work with a large ecosystem of partners," he said. "That remains important to us. ... As you would expect, the number of partners working with us continues to grow as we expand our core value proposition."