VMware Reports Solid Q4 But Is Wary of 2009

Gone are the days of the 80 percent revenue growth it experienced earlier in the decade, but virtualization kingpin VMware continues to produce handsome profits and beat analyst revenue estimates despite a sluggish economy.

VMware, as the world market leader in virtualization software used in desktop computers and data center servers, announced its financial results for the fourth quarter and full year 2008 on Jan. 26, with the highlight being $1.9 billion in 2008 revenue—a healthy 42 percent uptick over 2007.

Revenues for fourth-quarter 2008 were $515 million, an increase of 25 percent from the fourth quarter of 2007. Analysts had estimated a quarterly take of a bit more than $512 million.

But all is not perfectly rosy. Looking ahead, VMware forecast its current-quarter revenue to be below Wall Street expectations, due to the weakening economy and increased competition, Chief Financial Officer Mark Peek told analysts, investors and journalists on a conference call.

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With VMware's guidance for the first quarter of 2009, the company has projected its first sequential decline in revenue, Peek said. He said economic conditions have made a full-year forecast difficult, but he estimated first-quarter sales of $475 million versus an average analyst estimate of $496.5 million.

"In fact, this is the most challenging economy we're ever seen in our careers," Peek said.

The common stock closed at $22.00, up about 50 cents on the day.

The company has plenty of cash—more than $1.8 billion—and it reported deferred revenue of $870 million as of Dec. 31, 2008. Since the beginning of 2008, cash in the bank increased 50 percent and deferred revenue increased 57 percent, the company said.

Virtualization is a major paradigm shift from conventional single-purpose application servers to a pool of computing power that encompasses multiple servers, enabling notable performance gains and a lessening of the electrical energy used to run them.

Products still in big demand

"VMware's Q4 results prove that an IT solution with a clear, concise ROI is still in demand," Enterprise Strategy Group analyst Brian Babineau told eWEEK. "While the Q1 guidance may not appeal to the Street, the lack of a complete drop-off shows that customers are willing to spend money to save money."

VMware has been executing well in a difficult economy, said Paul Maritz, president and CEO of VMware, who came from parent company EMC to replace CEO and co-founder Diane Greene six months ago.

Click here to read more about the departure of former VMware CEO Diane Greene.

"In 2008, we made strategic investments in our technology, partnerships and business operations that position us well for 2009 and beyond," Maritz said. "We are making solid progress on our three key initiatives to build on our virtualization leadership in the data center, the cloud and on the desktop. … We are executing on our product road map, strengthening our ecosystem of partners and bolstering our management team, both globally and operationally."

Maritz said now that he's been at VMware for six months, "I see why VMware is one of the truly important and valuable platforms in our industry. I now firmly believe in that potential, having seen it from the inside. We've got the talent base, the technology base, the customer base, the partnerships and the strategy.

"With focus, good old-fashioned hard work, I know that we can achieve that goal and build really amazing things here."

Greene, who co-founded VMware and as CEO turned the company into the most successful x86 virtualization vendor, was ousted July 8, 2008, after having a falling-out with EMC management.