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VMware Strong In Fourth Quarter, Hedges On 2009

If IT budgets loosen up with an economic turnaround, company execs expect VMware to be a big beneficiary.

Virtualization leader VMware turned in a powerful fourth-quarter 2008 performance, with revenue of $515 million, an increase of 25% over the fourth quarter of 2007.

Its annual revenue growth topped 42% at $1.9 billion, in the low end of its 42% to 45% estimate at the end of the third quarter.

Operating income for the fourth quarter was $102 million, an increase of 34% from the fourth quarter the previous year, according to generally accepted accounting principles. GAAP operating income for the year was $313 million, or 33% of revenue.

Net income for the year was $290 million, or 73 cents per share, in 2008, compared with $218 million, or 61 cents per share, in 2007. Net income for the fourth quarter was $111 million, or 29 cents per share, versus $78 million, or 19 cents per share, for the same period last year.

"We delivered good performance in a quarter that experienced very trying times," CEO Paul Maritz said. VMware's customers became "very cautious about defending their cash" during the quarter as the ramifications of the financial system meltdown became known, he said in a teleconference on the fourth-quarter earnings.

VMware's U.S. revenue grew 37% over 2007 to $988 million; international revenue grew 48% to $893 million over the year before.

License revenue was $1.2 billion, up 30% in 2008; services revenue, including maintenance, was $703 million, up 67% to $703 million. Cash on hand was $1.8 billion as of Dec. 31, with deferred revenue of $830 million on the books.

VMware CFO Mark Peek said the company was lowering its expectations for the first quarter of 2009 "based on what we're hearing from customers," to revenue of $475 million, or a 10% decline over revenue in the same period of 2008.

"We've being conservative. We've never seen this level of uncertainty in customers. They're trying to preserve cash and keep their options open," Maritz said in response to financial analysts' questions on the next quarter's outlook. The company's officers were unwilling to offer an estimate of revenue for 2009 "because of this uncertainty."

If IT budgets loosen up with a turnaround, "we should be a big beneficiary," added Peek.

"We're not seeing a major challenge from competitors. Our major challenge is the economy," Maritz added.

Maritz said VMware would proceed more cautiously in 2009 with new hiring and acquisitions than it did in 2008. The company now has 6,700 full-time employees, 40% of them employed at VMware for a year or less because of rapid hiring and acquisitions.

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