VMware Q2 Beats Street On Strong License, Services Growth

VMware reported Tuesday strong revenue growth for the second quarter of 2014, beating analysts' earnings-per-share expectations despite a huge drop in profits caused by the company's AirWatch acquisition.

The results, led by a strong growth in both licensing and services revenue, continue to lay the foundation for VMware's three growth priorities in software-defined data centers, hybrid clouds and end-user computing, said VMware CEO Pat Gelsinger during the company's financial analyst call.

VMware President and COO Carl Eschenbach said during the call that he is pleased to see how closely the company's channel partners work with VMware.

[Related: VMware Claims Over 150 NSX Customers, Brings SDN Tech To Channel]

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"The channel, alongside our direct sales force, is now better trained to sell our next-generation products than ever before," Eschenbach said.

Neither VMware executives nor analysts on the conference call discussed the possibility that parent company EMC might spin off VMware or purchase it outright. EMC owns 80 percent of VMware, and one of EMC's biggest investors is calling for the two to separate.

VMware reported second-quarter revenue of $1.46 billion, up 17 percent from a year earlier. Wall Street analysts had been expecting revenue to reach $1.35 billion.

VMware also reported GAAP earnings of $167 million, or 38 cents per share, down from $245 million, or 57 cents per share. The company attributed the drop to its February acquisition of mobile device management developer AirWatch.

On a non-GAAP basis, VMware reported earnings of $351 million, or 81 cents per share, up slightly from last year's earnings of $343 million, or 79 cents per share. That compares to Wall Street analyst expectations of non-GAAP earnings of 79 cents per share.

About 47 percent of VMware's revenue, or $683 million, came from the U.S. market in the second quarter of 2014, up from $590 million, or 47.5 percent of the total, in the year-ago period.

VMware's second-quarter license revenue rose year-over-year by 15.6 percent to $614 million. On the services side, software maintenance revenue rose 20 percent to $737 million, while professional services revenue rose 8.2 percent to $106 million.

Enterprise license agreements, or ELAs, played a big role in VMware's business during the second quarter, Eschenbach said. About 37 percent of total second-quarter bookings came from enterprise license agreements, which was the second-highest level for the company, he said.

Eschenbach also said that VMware already has over 150 paying customers for its NSX software-defined networking technology, and over 300 paying customers for its VSAN software-defined storage technology.

The company also saw its hybrid cloud business grow 80 percent year-over year and currently has over 4,000 partners in its hybrid cloud network, he said.