Virtualization Technology News and Information
VMware financials announced for Q1 2009 - The good and the bad reported

For the last two days, VMware news was plastered everywhere in the virtualization scene.  And that virtualization news has been dominated by the announcement of VMware vSphere 4, the company's replacement for the widely popular VMware VI3.  And if the vSphere news wasn't coming out of the Palo Alto giant's camp, it was coming from everyone else in VMware's ecosystem who has a hand or wants to have a hand in vSphere's future success.

So moving from looking forward with vSphere to looking in the recent past, just yesterday, you may have seen that VMware also put out their financial numbers for the first quarter of 2009.  Taking a back seat to the hooplah that is vSphere (come on, financials can be boring, can't they?), VMware's numbers are interesting for Q1. 

Revenues for the first quarter were $470.3 million, an increase of 7% from the first quarter of 2008.  This was a nice mix between US and the rest of the world.  US revenues for the first quarter grew 8% to $244.1 million from the first quarter of 2008 while International revenues for the first quarter grew 6% to $226.2 million.  Impressive numbers to say the least.  How many software companies in the world would love to have revenues like this in such a down economy?  And cash was more than $2.0 billion with total deferred revenues hitting $917.2 million as of March 31, 2009.  Operating cash flow for the first quarter was $259.2 million, an increase of 95% from the first quarter of 2008.

VMware's stock closed yesterday evening at $32.55, up $2.33.  However Pre-Market numbers this morning are showing a nearly 17% drop in price, somewhere around $27, down more than $5.50.

There are two interesting notes in the financial announcement that may signal a reason for that. 

The first, VMware said it expects second quarter revenue of $456.1 million or less.  The current consensus estimate had revenue of $499.7 million for the quarter ending June 30, 2009.  Mark Peek, VMware's CFO said that due to the tough economic conditions, VMware expects customers will continue to keep a very tight rein on their IT spending, particularly on new investments.  Peek added that during Q2, the company expects a transition from VI3 to vSphere 4, and as a result, they expect the second quarter revenues to be flat, or even down, compared to the second quarter of 2008.

And the second reason may have to do with VMware's revenue make-up.  According to the financial press release, first quarter services revenues were $213.3 million, a 48% increase from last year.  "VMware’s business mix continues to shift with services revenues becoming a larger proportion of total revenues.  In the first quarter, services revenues were 45% of total revenues compared to 33% a year ago.  Driven by the challenging macroeconomic environment, license revenues were $257.0 million, a decline of 13% from a year ago."

Again, interesting to see the revenue make-up change.  Services is becoming a larger part of VMware's business, at least in Q1, while demand for licensing decreased by 13%.  Can the decrease in demand soley be attributed to the slowing down of the economy?  Or is Citrix, Microsoft, and others beginning to take away licensing market share from VMware?  With all of the new features and capabilities being announced with the coming vSphere product, will VMware see a shift back to increased license demand?  Or will services continue to be the growing revenue generator?

I suppose one thing is for sure, it sounds like VMware's acquisition of services provider Foedus back in January of 2008 may have turned out to be a good purchase for the company after all.  One can assume that bringing in the Foedus assets under the VMware umbrella helped the company scale and support this increased services revenue channel.

Keep an eye on the opening bell and let's see what happens to the VMware stock price.  It has certainly been on a rise the last day or so.  Will that charge continue with all of the good press and news coming out of the vSphere announcement?

Published Thursday, April 23, 2009 5:53 AM by David Marshall
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