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VMware placates Wall Street with 70 per cent Q1 revenue surge

Is there a Ginsu with that growth?

Next gen security for virtualised datacentres

The frenzied folks on Wall Street have come to terms with the realities of a slower growing VMware.

The virtualization software maker today reported first quarter results that showed revenue rising 69 per cent year-over-year to $438m. For the same period, VMware's net income rose a bit from $41m in 2007 to $43m.

VMware's rather meager net income increase might normally be cause for concern, but the financial analysts could care less about that. They're all about trying to figure out VMware's revenue growth for the years to come.

Back in January, VMware scared the greed right out of investors by revealing that it would no longer be able to double revenue growth every quarter. That was a real shock to the folks who had hiked VMware's share price into the stratosphere, thinking it could milk the hell out of the Fortune 1000 while Microsoft and Citrix figured out how to sell - or even produce for that matter - virtualization software.

VMware told the investors to expect 50 per cent revenue growth in 2008 instead of 100 per cent growth as in years past, Wall Street responded accordingly, selling off VMware shares at speed. Today, VMware delivered the exact same message, committing to 50 per cent growth in 2008 and 55 per cent growth in the second quarter, and a number of analysts cheered the company, during a conference call.

So, these Wall Street goons are capable of dealing with lowered expectations. Who knew?

The rather awe-inspiring thing about VMware's revenue "meltdown" is how far ahead of the competition it remains. Microsoft is bumbling around with Hyper-V at a beta testing facility near you, while Citrix is working through this XenSource acquisition. And by "working through," we mean "trying not to panic."

Citrix, which reports first quarter figures tomorrow, has said that it expects XenSource revenue of between $3m to $5m for the period. So, um, that's quite a way's off $438m, but maybe Citrix will surprise us.

Even though VMware is flying along, the company does seem to have developed a chip on its shoulder around this slowed growth bit.

CEO Diane Greene took time during the conference call to explain that "Only two other enterprise software companies have grown at more than 50 per cent after $1bn in revenue. We are pleased to be heading this way."

Four points and a biscuit to anyone who can identify those two companies.

Greene later veered into a lengthy VMware advertisement during the call, which struck us as peculiar, but we hear Ginsu's have high margins.

VMware is also pretty happy about the rocky economy, since constrained budgets tend to help the virtualization set. "Our product suite has a very high (return on investment)," Greene said. "That puts us in a very good position for getting wallet share as the economy gets a little more uncertain."

We're sure the Bear Stearns dude on the conference call appreciated the state of VMware's wallet share.

As evidence of this strength, VMware said it closed a number of big deals within the financial services sector...0although, we were told by a well-placed source that VMware handed one big name financial services customer a monumental discount to keep its business. Maybe that's where the profits are going. (Well, there and R&D and marketing costs, which soared during the quarter.)

On the corporate health front, VMware reported $1.3bn in cash and $641m in deferred first quarter revenue. It's also got 5,700 employees. So there are plenty of bodies and money around to keep the slowed growth going, we're told. ®

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