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VMware not immune to the downturn

Sales flat, profits down

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Server virtualization juggernaut and Wall Street darling VMware is by no means immune to the economic downturn or to the effects of the transition to its new vSphere 4.0 products, as its financial results for the second quarter show.

In the quarter, which ended June 30, VMware's software license sales fell by 19.8 per cent to $228m, obviously impacted by vSphere 4.0's April 21 launch and the fact that it didn't begin shipping until May 21. What's more, it has yet to be fully qualified to support various hardware and software.

But thanks to its growing installed base, VMware was able to rake in $189m in software maintenance fees, up 39 per cent from the year-ago quarter. Professional services sales at the company rose by 7.8 per cent in Q2, to $38.7m.

Overall sales were down one-tenth of a per cent to $455.7m. While the company was able to keep overall sales flat, earnings were impacted by higher sales costs, higher research and development costs, and higher overall costs, which drove net income down 37.8 per cent to $32.5m.

VMware said that its sales in the US fell by 3 per cent to $234m, while international sales rose 3 per cent to $222m.

CFO Mark Peek said that the company expects its sales in the third quarter to range between $465m and $480m, which puts the midpoint of that estimate somewhere around the $472m VMware brought in during Q3 2008.

VMware pulled $83m down to the bottom line in the third quarter of last year, but given its higher costs in 2009, it seems unlikely that the company will see anything but a net income decline again in Q3 - Peek did not provide any net income guidance for the third quarter.

For the full year, Peek said that VMware expects overall sales to grow by between 1 and 3 per cent compared to the full 2008 year, when VMware booked $1.88bn in sales and was up 42 per cent over 2007's sales. VMware brought an impressive $290m to the bottom line in 2008 - a very respectable 15.4 per cent of revenues - but it seems unlikely to repeat this feat in 2009.

VMware is sitting on $2.27bn in cash, so profits are not really an issue in terms of funding future product-development and sales efforts. VMware said that it plans to roll out desktop virtualization and management tools later this year. ®

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