VMware's revenues have slowed as the effects of economic recession have taken hold. The company's financial results echo its cautious prediction at the end of fiscal 2008 that this year would be flat or hard to predict.

Third quarter revenues were up just 4% to $490 million over the same quarter a year ago and operating income was $23 million, or down 77% over the same quarter a year ago.

Net income for the third quarter was $38 million, or $.09 per share compared to $83 million and $.21 per share for the same period a year earlier.

Cash and cash equivalents as of Sept. 30 were $2.2 billion, impacted by $356 million used for the acquisition of SpringSource. SpringSource is the supplier of the open source Spring Framework, a lightweight Java application building platform.

VMware's deferred revenues amounted to $990 million. Compared to the same period a year ago, cash increased 29% and deferred revenue increased 27%.

Revenues from the U.S. declined 1% to $246 million in the third quarter. International revenues were up 9% from a year earlier, reaching $244 million. Services revenues, including software maintenance and professional services, were $250 million, an increase of 33% over the same period the year before.

"The economic environment remains challenging," said CFO Mark Peek in announcing the results Wednesday. "Our solid third quarter results were driven by strength in the U.S. federal sector, increased transaction volumes, and particularly robust growth in our maintenance renewals," he said.

Next quarter revenues will be up, he predicted. Fourth quarter revenues will fall between $540 and $560 million. The following first quarter of 2010 will fall back from that range, if seasonal patterns hold true, he added.

CEO Paul Maritz said the quarter "achieved strong financial results" and the firm expanded its vSphere 4 and vCenter product lines. vSphere is the virtualization infrastructure VMware offers for running virtual machines under the ESX Hypervisor. It offers vCenter management tools that sit above the infrastructure. Maritz said there have been 500,000 downloads of vSphere 4 since it was made available May 21.

At VMworld Sept. 2, Maritz announced that its vCenter tools were being expanded to include vCloud Express, which provides a way for service providers to set up low end, self provisioning, pay-as-you-go services based on VMware virtual machines and the ESX Server hypervisor.

vCloud is meant to encourage more cloud providers to offer VMware based services. Amazon, the leading cloud vendor, offers a virtualized environment based on open source Xen and Amazon's customized Amazon Machine Image version of Xen files.

"VMware is well positioned to offer a superior platform for both private and public cloud environments," said Martiz in the earnings announcement.

AT&T, Savvis, Terrmark, and Verizon Business said Sept. 2 they will partner with VMware in offering cloud services.

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