VMware rides virtualization wave to strong quarter

VMware enjoys a strong quarter thanks to virtualization, though 2011 threatens slower growth

Continuing to ride a wave of enterprise server virtualization, VMware on Monday reported a 46 percent increase in revenue for the third quarter, or US$714 million, up from $456 million in the same quarter a year earlier.

The U.S. led the demand for VMware services and licences, particularly the U.S. federal government, which is heavily ramping up on virtualization, Mark Peek, VMware's chief financial officer, said in a statement.

U.S. revenue grew slightly ahead of revenue gathered from elsewhere in the globe. U.S revenue jumped 47 percent, to $362 million, compared to a 44 percent growth, or $352 million, for the rest of the world.

The revenue was split fairly evenly across licenses -- $343 million, up 43 percent -- and services -- $371 million, up 49 percent.

Net income jumped as well, to $85 million, up from $38 million in the third quarter of 2009. Non-GAAP income was $165 million, up from $95 million last year.

The revenue beat analyst predictions of $698 million for the quarter. Because of that, VMware expects fourth quarter revenue to be between $790 and $810 million, which would be an increase of 30 percent to 33 percent year-on-year.

However, while growth in 2010 looks solid, VMware executives predicted a slightly slower year ahead, at least in terms of growth.

"We expect server shipments to grow more slowly in 2011, relative to 2010," Peek said in a conference call with analysts. As a result, VMware's revenue may decline in the first quarter in 2011 compared to the last quarter this year, though may still be up 25 percent year-over-year.

Additional acquisitions may also be made. The year 2011 "will be a year of significant investment with little if any operating margin expansion," Peek said.

VMware is banking on some additional revenue coming in from other areas, such as desktop virtualization and cloud computing.

In desktop virtualization, "the growing interest in our desktop solution led to record quarterly desktop license revenues," Peek said, though he did not provide figures, noting that the technology is still in its early adoption phase. One client, a Detroit automobile manufacturer, is rolling out 6,000 desktop seats using the company's VDI (virtual desktop infrastructure) software, according to VMware.

VMware acquired two companies during the quarter that just ended, performance analytics software provider Integrien, and security firm TriCipher.