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VMware revenue climbs 35 per cent on ‘pent-up demand’

The results beat expectations, though VMware said new license sales may fall next quarter

VMware’s revenue jumped 35 per cent in the first quarter, the company said Tuesday, another sign that businesses are opening their wallets again for enterprise IT purchases.

Profits climbed more modestly, but the virtualization software vendor still managed to report better numbers than expected. The results were driven by “pent-up customer demand” and strong sales in Europe, China and Japan, Chief Financial Officer Mark Peek said in a statement.

Revenue for the quarter, ended March 31, was US$634 million, up from $470 million for the same period last year. Net income before one-time charges was $133 million, or $0.32 per share, up from $100 million, or $0.25 per share, in last year’s first quarter, VMware said.

The picture was not all rosy. Peek warned that new license sales, an indicator of future growth potential, are likely to be down next quarter compared with the first. But full-year revenue will rise by as much as 35 per cent, VMware said, helped along by recent acquisitions.

Software license revenue for the quarter was $312 million, up 21 per cent from the first quarter last year. Services revenue, comprised mainly of fees for software maintenance, increased 51 per cent to $322 million.

Business outside the U.S. grew fastest. U.S. sales were up 30 per cent, while international revenue climbed 40 per cent. Japan did particularly well, with sales doubling from a year earlier, Chief Operating Officer Tod Nielsen said on a call-in to discuss the results.

VMware executives said they were pleased with the quarter but stopped short of declaring that a recovery is under way, noting that demand was helped by the “long dry spell” that preceded it. “I think it’s too soon to say we’re back in normal waters,” said CEO Paul Maritz.

Last quarter’s results were buoyed by a single, eight-figure deal that VMware signed with a large customer in Europe, including $8 million in license revenue. It was the largest deal the company has signed since the first quarter last year, and no others that big are lined up this quarter, Peek said.

Average selling prices at the company have been under pressure since it launched its low-cost Essentials and Essentials Plus products for smaller businesses. VMware managed to keep its average prices steady in the first quarter by closely managing the discounts it offers to larger customers, but it expects the pressure on prices to continue, Peek said.

The move into the SMB market is partly a defensive one. VMware hopes to grab its share of small-business customers before Microsoft, traditionally a strong player in that market, can take a firm hold there.

“We’re more than holding our own against competitors, but they are determined and have deep pockets,” Maritz said at one point on the call.