VMware squeezes customers for stellar quarter

Despite a wave of executive departures, questions over its ability to make money arming cloud vendors, and a dismal economy at home and abroad, VMware has reported a solid set of financial results, though slow growth in software licensing points to storms ahead.

The virtualization company reported combined revenues of $1.24bn on Wednesday for its second quarter 2013 earnings, up 10.6 per cent on the $1.12bn in the same quarter a year ago. Growth in this figure came mostly from services rather than licensing, which to El Reg​'s patent-pending earnings analyzer indicates difficulty in coaxing new customers into the fold.

Software licenses crept up a mere 2.5 per cent to $530.5m, compared with $517.2m in the same quarter a year ago, and $488.2m in the first quarter. Better growth was found in services, which broadly represents revenue from support contracts, and which grew 17.6 per cent to $712.6m.

This climb let the company report a net income of $244.1m, up a whopping 27 per cent on Q2 2012's $191.7m, and significantly up on the previous quarter's $176m.

The high income was paired with greater spending on sales and marketing – $442m versus $391m in the year-ago quarter – indicating to us a company fighting to maintain existing customers and spending more than ever on courting new ones. But with the lax license growth we see little evidence of a flood of VMware converts, and instead sense greater sell-ins to existing customers and renewals by longtime VMware shops.

Though some of the figures point to difficulties ahead, the company beat estimates by Wall Street bean counters, who had expected revenues of $1.23bn and an EPS of $0.77 versus VMware's $0.79.

"The second quarter was a strong finish to a solid first half of 2013 for VMware," VMware's chief executive officer, Pat Gelsinger, said in a canned quote. "We see a significant market opportunity in the second half of 2013 and beyond."

Though VMware has done much to prepare itself for the changes in the IT industry being brought about by broader adoption of cloud services and cloud licensing models, much is uncertain.

To attain mega success, the company will need to get its strategically important Hybrid Cloud Service software into major IT providers. Given the lack of information on this nebulous service since its launch in May and the subdued performance of its predecessor, vCloud Director, we have no information to use when judging how VMware is faring in clouds already dominated by Microsoft and Amazon.

Gelsinger & Co will also need to retain key executives, which may be difficult, judging by the recent departures of a number of top execs – including cloud king Bogomil Balkansky – who were apparently unable to leap the wall into EMC, VMware, and General Electric's sexy new joint venture, GoPivotal.  ®