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VMware's Profit Cheers Tech

Shares of virtualization darling VMware (NYSE: VMW) enjoyed more positive gains a day after it reported revenue growth of close to 70 percent for the quarter just ended compared to the same time last year.

Shares closed up at $61.41 today, gaining another .57 cents after it said it earned 11 cents per share on revenues of $438 million for this year's first quarter. Shares gained 4.9 percent yesterday following the earnings news as well.

The Palo Alto-based shoot-off of EMC shipped new tools for desktop virtualization, datacenter virtualization, management and automation and platform security in the past three months. It also announced OEM agreements with four major hardware vendors.

The first quarter growth curve isn't expect to turn down anytime soon. VMware expects an increase of 55 percent in the second quarter, over the $297 million it reported a year ago. Full-year sales are predicted to hit 50 percent over 2007 revenue of $1.33 billion.

Given its leadership in a market with little, if any significant competitors, those predictions will likely prove true. Gartner research reports the virtualization market is "hot," and estimates that just 7 percent of potential market has been tapped.

The ability to land notable contracts, such as defense contractor General Dynamics, for development of a highly secure workstation, is a key factor as well.

Noting increasing demand for product, and accelerated adoption paths, VMware CEO Diane Greene said a "well-developed distribution model" is propelling revenue increases.

"Our strategy is product driven, and we expanded our channel in February which drew new customer acquisition," Greene said during yesterday's earnings call.

VMware, which was acquired in 2004 for $600 million by EMC, posted $1.32 billion in 2007 revenues. EMC retains 86 percent economic and 98 percent voting interest in VMware.

Software license sales rose 73 percent from a year ago first quarter to $294 million in this year's first quarter, while services revenue, which includes support, subscription and professional services, increased by 62 percent to $144 million.

The company plans to boost research and developments investments this year, including staffing at its three research centers located in China, Bulgaria and Bangalore.

"We are seeing customers progress more rapidly through the virtualization adoption path; many are now moving right into a VMware-based architecture so that they can pool their resources, and also get an insurance policy for business continuity and disaster recovery," Greene said in a statement.