VMware Impresses In First Public Quarter

VMware on Wednesday posted a third-quarter profit of $64.7 million, or 18 cents a share, on sales of $358 million, easily exceeding analyst estimates in its first quarter as a publicly held company.

Analysts predicted the virtualization software company would earn 17 cents a share on sales of $334 million in the quarter.

More impressive, VMware’s adjusted earnings—excluding the cost of stock option expenses, the write-off of in-process research and development and the amortization of various intangible assets—checked in at $85 million, or 23 cents a share.

Dubbed the “Google of virtualization,” VMware’s $358 million in sales marked a 90 percent improvement from the year-ago quarter when it pocketed $19.2 million, or 6 cents a share, on sales of almost $189 million.

“We’re very happy to share our financial results, our first as a public company,” Chief Financial Officer Mark Peek said during a conference call with analysts. “We’re pleased with our ability to invest in our business and deliver strong financial results.”

Since its spectacular initial public offering August 14, VMware shares have continued their impressive ascent, surging from an initial price of $29 a share to more than $100 a share earlier this month. Its shares closed off $2.63 a share, or almost three percent, to $103.52 ahead of the earnings report before shooting up more than $5 a share in after-hours trading.

Neither Peek nor CEO Diane Greene would provide analysts with specific sales or earnings forecasts for the fourth quarter, saying only the company expects to see “some seasonal” increase in sales in the fourth quarter as companies typically use up the remainder of their IT budgets before the new year. The $358 million in sales recorded in the past quarter meant the Palo Alto, Calif.-based company sold more than $1 billion in software licenses and services in the past year.

Virtualization software enables IT managers to create a virtual version of an application or an operating system residing on one server and transfer it to another physical server or virtual machine to optimize the efficiency of all servers running in a datacenter.

“Virtualization is driving what’s turning out to be a complete refresh of the datacenter,” Greene said during the conference call. “VMware is leading a young but very strong industry.”

Earlier this month, VMware unveiled the modifications and upgrades it will make available later this year to its flagship VMware Infrastructure software. This latest iteration will include Storage VMotion, a feature that will allow datacenter managers to seamlessly transfer data from one storage array to a new storage array without shutting down the servers and arrays processing all the various applications and operating systems.

In May, Gartner reported more than 500,000 virtual machines were already online and it predicts that figure to grow to more than 3 million machines by 2009. And IDC predicts virtualization sales will more than double within the next five years to more than $12 billion.

While VMware, for now, is the clear leader in this suddenly white-hot sector, competition looms from the likes of Virtual Iron and Xen Source, acquired in August for $500 million by Citrix Systems, and Microsoft’s “Viridian” product scheduled for release sometime in the first half of 2008.

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