Virtualization Technology News and Information
VMware Q3 profits may be down, but it aint all bad with the virtual giant

There's a lot of fighting and positioning going on within the server virtualization market.  Vendors like VMware, Citrix, Microsoft, Oracle, and Red Hat are constantly going after each other with traditional marketing campaigns, sales tactics, technology enhancements, and even social media battles.

VMware is still the dominant giant in this market, and bragging rights don't come cheaply.  With everyone gunning to be number one, it isn't always a comfortable place to be positioned.  However, VMware seems to enjoy it (rightfully so), and they continue to make hay whenever and wherever they can.

The company's annual conference, VMworld, has come and gone without any real market changing news.  The company did try to position the SpringSource acquisition as big news during the event, but it seemed to fall flat on the virtual administrator audience.  Confusion?  Or they just didn't care.  Not sure.  But the SpringSource news seems to fall on deaf ears, for the most part.  Perhaps that will change once things become a bit clearer.  Or, it may find VMware a new audience they didn't have before.  But neither that nor the dreadful economic conditions seem to keep the company down.

Last week, VMware posted its third quarter financials.  While profits slid 54 percent, thanks in part to higher research and marketing costs, revenue ended up beating Wall Street's expectations.  Q3 revenue reached $490 million, and the company projected that its fourth quarter revenue would be somewhere around $540 to $560 million - that's more than the analyst target of $523 million.  So, a bit of good news for them.

On an analyst conference call last week, VMware CEO Paul Maritz said the economic climate has improved, and there are definitely some swallows in the sky, but we should remain cautious. 

So that sets the stage.  We expect fourth quarter revenue to be up, but... just in case, we should remain cautious.

License revenue came in at $240 million, which was down 16 percent from the previous year.  However, services revenue (which includes subscriptions, consulting and information technology support) outgrew the rest of the business with a 33 percent jump to $250 million.  VMware seems to be gaining better visibility into their business, while the numbers seem to show that customers are locking into longer term bulk license deals.  That also doesn't say much for vSphere 4's burst onto the scene.

Earlier this year, VMware announced the fourth major upgrade to its main product line in its 10 year history with the release of VMware vSphere 4.0.  Although the technology greatly improves on previous releases, it may take several more quarters before it significantly impacts the company's revenue.

Revenue aside, VMware said that VMware vSphere 4.0 has seen accelerated momentum with more than 500,000 customer downloads of the product since it was made generally available on May 21, 2009.  And while a half million downloads is indeed a significant number, it appears as though the download rate may be slowing down a bit.  The company originally reported 350,000 downloads within the first 12 weeks of its launch; but nearly eight weeks later, they've only increased by another 150,000 downloads.  Still, an impressive number to hold out against would be competitors.  But that doesn't scream success...

VMware's stock has surged over the past three months.  But it looks like it may be back on a downward tick these past few days.  Let's see where it settles by end of week now that the company has announced Workstation 7 and Fusion 3.0.

Published Wednesday, October 28, 2009 6:32 AM by David Marshall
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