VMware, Inc. (NYSE:VMW), the global leader in virtualization solutions from the desktop to the datacenter, today reported financial results for the third quarter of 2008:

• Revenues for the third quarter were $472 million, an increase of 32% from the third quarter of 2007.
• GAAP operating income for the third quarter was $101 million, an increase of 54% from the third quarter of 2007.
• Non-GAAP operating income for the third quarter was $115 million, an increase of 26% from the third quarter of 2007.
• GAAP net income for the third quarter was $83 million, or $0.21 per diluted share, compared to $65 million, or $0.18 per diluted share, for the third quarter of 2007.
• Non-GAAP net income for the quarter was $93 million, or $0.24 per diluted share, compared to $85 million, or $0.23 per diluted share, for the third quarter of 2007.
• Cash was nearly $1.7 billion and deferred revenue was $780 million as of September 30, 2008.

Third quarter U.S. revenues grew 24% to $249 million from the third quarter of 2007. International revenues grew 42% to $224 million from the third quarter of 2007 driven by strength in Europe.

“VMware had another solid quarter, despite the challenging economic environment,” said Paul Maritz, president and chief executive officer of VMware. “This is a testament to the value our virtualization solutions provide to our customers. As commercial and government organizations are increasingly forced to do more with less, they’re moving VMware to the top of their short list of strategic priorities. Reducing hardware and operational costs, becoming more efficient, flexible and effective – these are the proven benefits we bring to our customer base of over 120,000.”

“At VMworld 2008 in September,” continued Maritz, “we laid out three key initiatives to build on our basic proposition of enabling our customers to do more with less. We plan to expand our current VMware Infrastructure offerings into a comprehensive virtual datacenter operating system for an enterprise cloud that is highly elastic, self-managing and self-healing. This will enable customers to treat their IT infrastructure as a single giant computer with which they can more efficiently and flexibly provision and manage heterogeneous application loads. This approach, coupled with the work being done under our vCloud initiative, will also open the way to allowing application loads to be seamlessly off-loaded as needed to external Clouds. Complementary to these approaches, our vClient initiative lays out a roadmap to bring the management of thin and thick clients into a single framework, and give users the best of both. Execution against these initiatives starts with a major release this quarter of our client virtualization management, VMware View™ 3.0, and significant deliveries are expected through 2009.”

Third Quarter Highlights & Strategic Announcements

• VMworld 2008 had a record of 13,800 attendees from 156 countries, a 30% increase over last year’s attendance. 215 sponsors and exhibitors supported the conference, including Platinum Sponsors Cisco, Dell, EMC, HP, IBM, Intel, NEC, NetApp and Symantec who delivered keynotes.
• Virtual Datacenter Operating System (VDC-OS) -- groundbreaking new products and technologies are planned to expand VMware Infrastructure offerings into a comprehensive virtual datacenter operating system that can pool IT resources - servers, storage and network – into a single enterprise cloud. By pooling IT infrastructure, customers can more efficiently and flexibly provision and manage heterogeneous application loads. The new VDC- OS capabilities announced by VMware are expected to be delivered in 2009.
• vCloud Initiative -- with support from 100+ partners, including BT, Rackspace, SAVVIS, SunGard, T-Systems, and Verizon Business, our vCloud Initiative is aimed at helping companies both large and small safely tap compute capacity inside and outside their firewalls – how they want, when they want, and as much as they want – to ensure quality of service for any application they want to run, internally or as a service.
• vClient Initiative – will enable the delivery of universal clients – desktops that follow users to any end point while providing a rich personalized experience that is secure, cost effective and easy for IT to manage. The first step of the initiative is the roll out of VMware View™ – a set of products that extend VMware’s Virtual Desktop Infrastructure (VDI) solutions to include both server hosted virtual desktops and client virtual desktops that can run on any laptop or desktop computer. The vClient Initiative includes several new desktop virtualization technologies which VMware plans to introduce in 2009. These new technologies are planned to include client virtualization, image management (available as VMware View Composer) and offline desktop.
• General availability of the new VMware Studio, an authoring and configuration tool to construct Virtual Appliances and vApps; also announced general availability of VMware Lab Manager 3, VMware Fusion™ 2.0 and VMware Workstation 6.5.
• VMware and Cisco plan to deliver joint datacenter solutions designed to improve the scalability and operational control of virtual environments. The Cisco Nexus® 1000V distributed virtual software switch is expected to be an integrated option in VMware Infrastructure. Cisco and VMware also intend to combine their expertise in networking and virtualization to introduce a new set of multidisciplinary professional services and reseller certification training in support of customers’ data center virtualization strategies. In parallel, Cisco and VMware are collaborating on integrating VMware Virtual Desktop Infrastructure (VDI) solutions with Cisco® Application Delivery Networking solutions to improve the performance of virtual desktops delivered across wide-area networks (WANs).

Financial Outlook

The following forward-looking statements are based on current expectations and are subject to uncertainties and risks discussed below and in documents filed by VMware with the United States Securities and Exchange Commission. Actual results may differ materially.

Current uncertainty in global economic conditions makes it particularly difficult to predict product demand and other related matters and makes it more likely that VMware’s actual results could differ materially from expectations.

• VMware is maintaining its 2008 revenue guidance for annual growth of 42% to 45% over 2007. VMware cautions of an increased likelihood that 2008 revenue will be at the lower end of the guidance range.
• GAAP operating margin for the fourth quarter of 2008 is targeted to be between 16% and 18%. This guidance includes stock-based compensation, employer payroll tax on employee stock transactions, and amortization of intangible assets and capitalized software development costs which are targeted at 6% of projected revenue.
• The 2008 GAAP tax rate is expected to be between 13 and 15 percent and reflects the reinstatement of the U.S. Federal research tax credit. This guidance includes stock-based compensation, amortization of intangibles, and FAS86 capitalization, representing approximately 3 - 4 percentage points.