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April 23, 2009

VMware’s profit jumps but future not so rosy

Firm expects falling IT spend to hit revenue

By Steve Evans

Virtualisation house VMware has revealed an increase in revenue and net income for fiscal 2009 Q1 but the company also said that it expected revenue to remain flat or even fall during the next quarter.

The figures included a 7% rise in revenue to $470.3m, while GAAP net income for the first quarter was $69.9m, up from $43.1m in FY08 Q1.

VMware’s results were buoyed by a 48% year on year increase in services revenue to £213.3m but license revenue of $257m showed a 13% drop from a year ago. Services revenues contributed 45% of total revenues compared to 33% during the same period last year.

VMware believes that the launch of vSphere 4 will result in an initial drop-off in revenue during the next quarter as it works its way into the market.

“Due to the tough economic conditions, we expect customers will continue to keep a very tight rein on their IT spending, particularly new investments,” said VMware’s CFO Mark Peek. “During this quarter, we and our extensive ecosystem of partners will begin the transition to VMware vSphere 4. As a result, we expect our second quarter revenues will be flat, or even down, compared to the second quarter of 2008.”

That quarter the company posted revenue of $456m while Wall Street was predicting revenue of $501m for the same period this year. Shares in VMware slumped 11% after the outlook warning, according to Reuters.

“We delivered solid results for the first quarter despite a very challenging economic climate,” said VMware CEO Paul Maritz. “In an environment where customers are reducing IT purchases in order to preserve cash, we successfully managed costs while continuing to make strategic investments in our products.”

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