VMware Profits Down 36.5% but Execs Optimistic for Rest of 2009

Enterprise virtualization software kingpin VMware on July 22 reported a 36.5 percent falloff in its second-quarter profit from the same period a year ago, but CEO Paul Maritz and his fellow executives remained optimistic about the company's prospects for the next six months.

VMware, which is owned and operated as an independent subsidiary by storage giant EMC, reported profits of $33 million or 8 cents per share, compared with $52 million or 13 cents per share a year ago. Overall revenue was flat at $456 million.

It is widely estimated that VMware's hypervisor, which enables data storage to be consolidated and carved up into workload units not bound by physical disk capacity, is used in about 80 percent of the world's enterprise IT systems.

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"We managed to return a solid quarter, despite a very large product transition," Maritz said. "As far as our customers and ecosystem partners are concerned, it's been very positive.

"About 1,000 ecosystem partners, from very small ISVs to very large server vendors, have been working hard on getting their certifications for their products [on VMware's ESX and VSphere hypervisors] and releasing new products that use the VSphere foundation. This will all help build future bridges to the cloud. And it speaks to the product maturity we have."

VMware Chief Financial Officer Mark Peek told analysts and journalists on a conference call that VMware expects revenue to be slightly better at between $465 million and $480 million in the third quarter of 2009. Wall Street analysts' estimates are in the neighborhood of $474 million.

In after-hours trading July 22, VMware's stock price climbed about 7 percent to $33.60.

Cautious but optimistic

"Even though we remain cautious about the global economic conditions, we are beginning to get a somewhat better visibility into our business," Peek said.

Peek also said VMware expects revenue for its fiscal year 2009 to increase by 1 to 3 percent over its 2008 sales of $1.88 billion.

According to Peek, VMware's second-quarter services revenue increased by 32 percent from a year ago to $228 million, while license sales fell 20 percent, also to $228 million. A couple of major U.S. military-sector service deals were keys to the service revenue increase during the quarter.