VMware still shines in a Facebook world

Executive shuffle as CFO departs for Workday

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It's tough for VMware to compete for mindshare in a world where Facebook is getting ready to go public and social media is so much more graspable for the masses compared to the virtual infrastructure that VMware sells.

But VMware's finances are still impressive enough to warrant some love for infrastructure, with revenues up 25.1 per cent to just over $1bn in the first quarter and net income up a staggering 52.2 per cent to $192.4m.

While those are impressive numbers, consider that Facebook was roughly the same size as VMware in 2011, with sales of $3.71bn compared to $3.77bn for VMware. Facebook's revenues grew 88 per cent and its net income of $1bn was up 65 per cent; VMware more than doubled earnings to $723.9m. VMware is a much more mature company and is hitting its stride as it tries to transform from a server virtualization company to a cloud and application platform provider to help companies the world over build better applications and systems underneath them. So being able to show such numbers is impressive.

VMware has the much harder task of the two – convincing companies to pay a premium to build clouds – although Facebook certainly faces some steep engineering challenges of its own building a giant cloud to amuse close to 1 billion people.

In the quarter ended in March, VMware had $481.9m in software license sales, up 15 per cent from the year ago period and more like the kind of growth you would expect from a mature company with an installed base of 350,000 customers and 50,000 partners pushing its bits. VMware's services revenues were up smartly in the first quarter, rising 35 per cent to $573.3m and no doubt contributing to VMware's beating the high end of its own revenue guidance for the quarter by $15m. Of the total services sales, $81m was for professional services, which rose by 33 per cent year-on-year.

VMware exited the quarter with $2.63bn in cash and another $2.6bn in short-term investments and a relatively minor $450m note it owes parent company EMC. The company had $2.8bn in deferred revenue on the books, too. (Chew on those numbers, Zuck.) Most of that is future support services for licenses already sold, since companies are paying 24-month support contracts generally. In a conference call with Wall Street analysts, Mark Peek, the company's CFO, said that 13 per cent of that unearned revenue was for software licenses yet delivered and 7 per cent was for professional services that will be delivered at future dates.

Peek said on the call that VMware has signed up over 8,000 companies to its service provider program as they move from hosting to cloudy infrastructure sales, which is helping to drive revenues for the management tools that sit atop the ESXi hypervisor that is the heart of VMware. He added that enterprise license agreements – big and complex corporate contracts – accounted for 22 per cent of bookings in the first quarter and that among those ELA contracts, two of them were for more than $10m. (In the first quarter of 2011, VMware had five ELA deals that were greater than $10m.)

While vSphere average selling prices declined in the quarter, Peek said that strong demand for the entry Essentials and Essentials Plus packages of tools that ride above or beside the ESXi hypervisor actually saw their ASPs rise in the quarter. VMware does not break out revenues by product line, but Peek said that sales of vCloud and vCenter Ops, two key management tools, were getting "solid traction" in the market and confirmed that management tools comprise about 10 per cent of license sales.

VMware did not elaborate much on virtual desktop sales, but did say that it expected to put out a kicker to its View 5 desktop virtualizer before 2012 comes to a close and that VDI-related sales were about 10 percent of bookings for software licenses.

Looking ahead, VMware expects for revenues to rise by 19.5 to 21.5 per cent in the second quarter, to between $1.1bn and $1.12bn, with software license revenue up somewhere between 10 and 12 per cent. For the full year, VMware is looking forward to somewhere between $4.525bn and $4.625bn in revenues and license revenue sales rising 12 to 16 per cent and overall growth across software and services of between 20 and 23 per cent.

CFO departs for SaaS app provider

In a related item, VMware said that Peek, who is co-president in charge of business operations as well as CFO, is leaving the company on June 1 to go work for Workday, the cloudy human resources application software provider formed by Dave Duffield, the founder of PeopleSoft. Peek was the CFO when VMware went public in 2007, which was one of the crazier public offerings in recent memory thanks to the rage about server virtualization.

Carl Eschenbach, who was co-president along with Peek and in charge of customer operations, has been given the COO title and now shares the presidency with Tod Nielsen, who heads up application platforms.

Raghu Raghuram, general manager of VMware's cloud infrastructure and management tools, has been promoted to an executive vice president position and still in charge of cloudy things at VMware. ®

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