Financial

VMware's de-accelerating growth

posted on 23 July 2008 10:14

Q2 figures good but momentum is slowing

VMware announced good but not great, by its standards, Q2 2008 figures yesterday and said its growth momentum is slowing.

Second quarter 2008 revenues were $456 million, up 54 percent on the year-ago quarter's $297 million. GAAP net income was $52 million ($0.13/share) compared to Q2 '07's $34 million ($0.10/share), a rise of 53 percent.

Spanking new VMware CEO and president Paul Maritz said: “VMware had another solid quarter, proving that the quality of our products and the immediate return on investment that they yield is delivering high value to customers. I am personally excited to become part of a company that has the potential to become one of the truly important and enduring companies in the software industry.”
“Our mission is to help customers run datacenters that use powerful, cost-effective, modern hardware to deliver dramatically higher levels of flexibility, manageability and efficiency. Today, much of our growth comes from customers expanding from basic server consolidation, yet increasingly more customers are seeking to virtualize their entire datacenter and desktop environments with VMware Infrastructure. We are also on the threshold of a major new opportunity – as customers begin to leverage VMware as both the on-ramp to the Cloud and for key elements of the Cloud itself. We are well-positioned to become a truly strategic platform for businesses of all sizes.”

Hmm. Not a word about Hyper-V's entry into the Windows virtualization market.

The outlook is for lower growth: 2008 revenues are targeted to grow approximately 42 percent to 45 percent compared to 2007. It had previously expected a 50 percent growth rate. Third quarter 2008 revenues are targeted to be within a range of approximately $462 to $468 million. The Wall Street consensus expectation was $497.3 million.

VMware is hoping that its virtualization software superstructure will enable it to withstand the entry of Microsoft's Hyper-V into the virtualization market. History is perhaps against it as one recalls the litany of past market-dominating software suppliers that have either been blitzkrieged by the Redmond panzer tanks: Corel (WP); Lotus (ppreadsheet); Netscape (browser), or forced to accept very strong competition: IBM and Oracle in DBMS; IBM and Novell in collaboration software, for example.

VMware faces a bruising market battle. It has to put the abrupt termination of ex-CEO Diane Greene's contract behind it and move energetically forward. Greene faced a glass ceiling coming down on her. VMware faces a Microsoft ceiling slamming down on it.