VMware revenue up 35% on 'pent-up demand'

VMware's revenue jumped 35 percent in the first quarter, the company said Tuesday, another sign that businesses are opening their wallets again for enterprise IT purchases.


VMware's revenue jumped 35 percent in the first quarter, the company said, another sign that businesses are opening their wallets again for enterprise IT purchases.

Profits climbed more modestly, but the virtualisation software vendor still managed to report better numbers than expected. The results were driven by "pent-up customer demand" and strong sales in Europe, China and Japan, Chief Financial Officer Mark Peek said in a statement.

Revenue for the quarter, ended 31 March, was US$634 million, up from $470 million for the same period last year. Net income before one-time charges was $133 million, or $0.32 per share, up from $100 million, or $0.25 per share, in last year's first quarter, VMware said.

Analysts had expected revenue of $593 million and earnings of $0.28 per share, according to a poll by Thomson Reuters.

The picture was not all rosy. Peek warned that new license sales, an indicator of future growth potential, are likely to be down next quarter compared with the first. But full-year revenue will rise by as much as 35 percent, VMware said, helped along by recent acquisitions.

Software license revenue for the quarter was $312 million, up 21 percent from the first quarter last year. Services revenue, comprised mainly of fees for software maintenance, increased 51 percent to $322 million.

Business outside the US grew fastest. US sales were up 30 percent, while international revenue climbed 40 percent.

Japan did particularly well, with sales doubling from a year earlier, Chief Operating Officer Tod Nielsen said on a call-in to discuss the results.

VMware executives said they were pleased with the quarter but stopped short of declaring that a recovery is under way, noting that demand was helped by the "long dry spell" that preceded it. "I think it's too soon to say we're back in normal waters," said CEO Paul Maritz.

Last quarter's results were buoyed by a single, eight-figure deal that VMware signed with a large customer in Europe, including $8 million in license revenue. It was the largest deal the company has signed since the first quarter last year, and no others that big are lined up this quarter, Peek said.

Average selling prices at the company have been under pressure since it launched its low-cost Essentials and Essentials Plus products for smaller businesses. VMware managed to keep its average prices steady in the first quarter by closely managing the discounts it offers to larger customers, but it expects the pressure on prices to continue, Peek said.

The move into the SMB market is partly a defensive one. VMware hopes to grab its share of small-business customers before Microsoft, traditionally a strong player in that market, can take a firm hold there.

"We're more than holding our own against competitors, but they are determined and have deep pockets," Maritz said at one point on the call.

The company is still waiting for desktop virtualisation to take off in a big way. One customer that VMware didn't name - "one of the largest banks in the world," according to Nielsen - expanded its virtual desktop deployment during the quarter from 3,000 seats to 30,000, he said.

But most customers are moving more slowly. "This market opportunity has not yet tipped, and the challenge remains moving the broader market from evaluation to purchase," Nielsen said.

But VMware seems confident in its technology road map. It will update all its major products this year, including its core vSphere software and its View desktop virtualisation product, Maritz said.

The management tools that the company bought in February from parent company EMC, including software for server configuration management, will be integrated with VMware's vCenter management console, he said.

The second half of the year will be an important time, since many of VMware's largest customers have three-year enterprise license agreements that come up for renewal. Customers have so far been choosing to renew them, Peek said.

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