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VMware Earnings Beat Expectations In a Difficult Economy

Virtualization bellwether VMware announced earnings for the first full quarter under CEO Paul Maritz, the Microsoft veteran who replaced Diane Greene as president and CEO back in July. One of the most closely tracked companies on Wall Street's radar screen did not disappoint expectations with reported revenues for the third quarter of $472 million, a 32 percent increase achieved under increasingly difficult market conditions.

"Our revenue for the first nine months of 2008 increased 50 percent compared to the same period last year and now exceeds our revenue for all of 2007," noted Mark Peek, the company's Chief Financial Officer during an earnings call with analysts.

Despite unprecedented and severe recessionary pressures occurring in the US economy, VMware's U.S. revenues grew 24 percent. In addition, international revenues grew 42 percent, largely based on European sales.

VMware's stock has been a high flyer after the company launched what is widely described as the most successful IPO since Google last year. But, along with other tech issues, the stock has lost significant value after reaching a market high of $125 per share in October of 2007. More recently share value has been caught in the downdraft of a protracted stock market plunge, recently falling below $20.

VMware will have continued challenges into 2009 given Microsoft's entry into the market with Hyper-V, a product which significantly undercuts VMware's ESX hypervisor offering on price. Redmond sharpened the competitive knife further yesterday by releasing VMM 2008, a management offering designed to compete with VMware's vCenter.

Addressing these issues on the earnings call, Maritz said "I can also report to you that during this period, we did not see any major losses to Microsoft. Currently we take Microsoft very seriously and keep our eyes very closely focused on them, [but] Microsoft is still behind in terms of their product roadmap and we do not see them catching up to us until the next 12 to 24 months." Nevertheless, going forward, in addition to competition from Microsoft, Maritz and VMware will also have to contend with the double whammy of severe recessionary pressures and reduced IT budgets.

About the Author

Tom Valovic is a freelance technology writer.

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