Outlook Series | VMware Q2 '08: Profit Up 54%

VMware Q2 '08: Profit Up 54% - Giving Away ESXi

July 22, 2008

VMware reported financial results for the second quarter of 2008.

Second quarter U.S. revenues grew 43% to $240 million from the second quarter of 2007. International revenues grew 68% to $216 million from the second quarter of 2007 driven by strength in Europe and Australia.

Software license revenue grew 39% to $284 million from second quarter of 2007. Service revenues, which include support, subscription and professional services, were $172 million, an increase of 85% from the second quarter of 2007.

VMware made a profit (GAAP net income) of $52 million for the quarter, compared to $34 million for Q2 of 2007. It posted revenues of $456 million, an increase of 54% over Q2 '07.

“VMware had another solid quarter, proving that the quality of our products and the immediate return on investment that they yield is delivering high value to customers,” said Paul Maritz, president and chief executive officer of VMware. “I am personally excited to become part of a company that has the potential to become one of the truly important and enduring companies in the software industry.”

“Our mission is to help customers run datacenters that use powerful, cost-effective, modern hardware to deliver dramatically higher levels of flexibility, manageability and efficiency. Today, much of our growth comes from customers expanding from basic server consolidation, yet increasingly more customers are seeking to virtualize their entire datacenter and desktop environments with VMware Infrastructure. We are also on the threshold of a major new opportunity – as customers begin to leverage VMware as both the on-ramp to the Cloud and for key elements of the Cloud itself. We are well-positioned to become a truly strategic platform for businesses of all sizes.”

Paul Maritz intends to start giving away one of its software products, ESXi, to entice businesses to purchase other programs in VMware's software line. ESXi currently sells for a list price of $495.

VMware's CFO, Mark Peek noted that customers are taking a little more time to review longer-term contracts. "We're convinced this is due to macroeconomic conditions," he said.

Peek said VMware now expects revenue growth of 42 percent to 45 percent this quarter, totaling about $462 million to $468 million, which are modestly lower than its prior guidance.

During the second quarter, VMware made several strategic announcements:

Announced general availability of bundled application and infrastructure management products for the datacenter. VMware Lifecycle Manager, VMware Lab Manager and VMware Stage Manager provide a more cost-effective and powerful way to manage the entire software lifecycle. In particular, they enable end user self-provisioning of virtual machines, give IT departments complete control of virtual machine environments and provide application owners with application release management capabilities.
Announced general availability of VMware Site Recovery Manager, a pioneering new product for disaster recovery management and automation that simplifies business continuity planning and testing, and reduces the risk and complexity associated with executing disaster recovery.
Announced the acquisition of B-hive Networks, a privately-held application performance management software company. With this acquisition, which closed on July 1, VMware enhances the VMware portfolio of application and infrastructure management products by offering proactive performance management and service level reporting for applications running within virtual machines. B-hive’s R&D facility and team also forms the core of VMware’s new development center in Israel.
Announced general availability of VMware ThinApp 4, an application virtualization solution that lets customers run multiple versions of virtually any application on any Windows operating system without conflict. This product is the result of our first quarter acquisition of Thinstall.
Announced the VMware Alliance Affiliate Initiative (Channel Affiliate Program) – CA, Dell (Equal Logic), EMC, McAfee, NetApp, Riverbed, and Vizioncore (a subsidiary of Quest Software) have created VMware-oriented virtualization training and tools for channel partners as well as financial incentives on the sale of their products combined with VMware solutions.
Announced new Original Equipment Manufacturer agreements with key Chinese vendors Lenovo and Inspur to distribute and support VMware Infrastructure 3 on their systems. These agreements will help to further accelerate the adoption of VMware virtualization technologies in China.
Dell delivered a broad line of server systems embedded with VMware ESXi hypervisor including Dell PowerEdge 2950, R900, 1950, 2900, M600 blade and M605 blade systems. Other major vendors embedding VMware ESXi in their systems include HP, IBM, Fujitsu Siemens, Hitachi, HP and NEC.

VMware Financial Outlook

2008 revenues are targeted to grow approximately 42% to 45% compared to 2007.
Third quarter 2008 revenues are targeted to be within a range of approximately $462 to $468 million.
Third quarter GAAP operating margin is targeted to be between 11% and 13%. This guidance includes stock-based compensation, employer payroll tax on employee stock transactions, amortization of intangible assets and capitalized software development costs which are targeted at 9% of projected revenue.