VMware (NYSE:VMW) kept up with its previous quarter’s performance of exceeding the market’s expectations in the recently announced Q4 results.
Revenues for the quarter of $515 million exceeded the market’s expectations of $512 million and reported 25% annual growth. EPS for the quarter of $0.36 was significantly higher than the market’s expectations of $0.26 and recorded growth of 38% over the year.
In the quarter, License revenue grew 11% over the year to contribute $315 million. Services revenue of $200 million grew 56% over the year. Of this, Software maintenance revenue of $161 million grew 57% and Professional Services revenue of $39 million was up 50% compared with the previous year.
US revenue in the quarter increased 27% over the year to $274 million or 53% of total revenue. International revenue grew 22%, with major growth in China.
VMWare closed the year with revenue of $1.9 billion, growing a significant 42% for the year. EPS of $1.05 grew 28% over the year. In the coming quarter the company is planning for revenues of approximately $475 million.
Despite the growing economic concerns, VMWare was able to sign a record number of new customers for their infrastructure products. They saw significant adoption of their new products and boast of over 1,500 customers for their management automation products which were introduced in the second quarter of 2008.
Similar to the previous quarter’s results, they did not see major losses to competition. They launched three product initiatives during the year. First, the Virtual Data Center Operating System, which is focused on start-ups on the path of virtualization looking for immediate cost savings. As part of this initiative, they have begun transforming data centers into internal or private clouds so that hypervisors can be extended to provide a new computing layer, which yields capital and operating expense savings.
Second, their vCloud initiative enables service providers to implement compatible software and management so that end customers who are using VMware have the option to flexibly move workloads from their internal data center to the external cloud.
Finally, their vClient initiative is a comprehensive desktop solution for both thin and thick clients which ensures that when users encounter a specific device, their environment is automatically securely provisioned to that device. During the fourth quarter VMWare also had a major release of their desktop management tool, VMWare View 3.0 Suite, which will help create and manage environments on behalf of users.
Going forward, they are making a major update to their core server virtualization offerings for the VDC-OS initiative and are investing in research and development in areas such as non-RAS86 processes for smaller devices such as mobile phones.
VMWare has huge potential. The market is abuzz with speculation that Cisco is looking to buy out EMC’s stake in VMWare. Cisco has been looking at entering the virtualization market, and with VMWare it could do so with a big bang.
With a current stock price of $21.45, VMWare has a market capitalization of $8.4 billion. Cisco already owns 1.7% of VMWare’s stock. EMC has claimed that they are not looking at selling their 84% stake in the company. But earlier this month, Cisco launched a $4 billion debt sale, even as it has about $30 billion in cash. The debt includes $2 billion worth of 10-year notes at a yield of 2% over US Treasuries and $2 billion in 30-year bonds expected to yield 2.25% over Treasuries. Cisco might just be preparing for a bigger buyout.
Cloud computing is based on the ability to load balance storage platforms located worldwide, and its performance is based on optimizing the storage layers and the network to derive maximum cost efficiencies. VMWare’s virtualization layer is capable of talking to EMC’s storage platforms. With Cisco looking at entering the partnership, it could form a very interesting relationship through its networking capabilities.
Analysts are not clear on what Cisco is really targeting. A potential buyout of EMC could result in its competing with HP and IBM. If, on the other hand, Cisco is looking at buying out VMWare, then Microsoft needs to watch out. One way or another, it’s time to watch Cisco’s moves carefully!