Earlier this year, IDC’s Worldwide Quarterly Server Virtualization Tracker reported that virtualized servers constitute 18.2% of all new servers shipped during Q4 of 2009, compared with 15.2% a year ago. Further, IDC expects the number of deployed virtual servers to outnumber physical servers for the first time ever in 2010. Riding high on this virtualization wave, both VMWare (NASDAQ:VMW) and parent EMC (NASDAQ:EMC) are having a good run.
VMWare’s Q3 revenues grew 45.8% over the year to $714.2 million, driven by growth from license and services segment. License revenues grew 42.8% over the year to $343.2 million, and services revenues grew 48.7% over the year to $371.0 million. EPS of $0.39 was also higher than the Street’s projected $0.35.
There was revenue growth across the globe, with U.S. revenues up 47% over the year to $362 million and international revenues up 44% over the year to $352 million.
For the current quarter, VMWare expects revenues of $790 million–$810 million, exceeding the market’s expectations of $776 million. For fiscal 2011, though, the company expects revenues to grow only 20.0% over the year due to a slowdown in server shipment.
VMWare has been on an acquisition spree and recently acquired Integrien, a provider of real-time application and infrastructure performance analytics software, and TriCipher, a leader in secure access management and enterprise identity federation for cloud hosted Software-as-a-Service applications.
Analysts expect the Integrien deal to have cost VMWare $102 million. Integrien’s flagship Alive is an IT performance management platform that monitors online applications and services and recognizes anomalies. The market expects VMWare to integrate Alive with vFabric, VMWare’s Platform-as-a-Service (PaaS) solution.
TriCipher’s product, myOneLogin, is focused on identity management in SaaS cloud computing and is a single sign-on product that maps the enterprise user accounts to the cloud provider user accounts. It enables organizations to use a single log-in to grant or deny access to users instead of creating multiple log-ins. TriCipher is expected to be part of VMWare’s desktop virtualization offering as it is already using the TriCipher technology in project Horizon, a Web-based application provisioning portal.
VMWare’s stock is trading at $73.39 with a market capitalization of $30 billion. It touched a 52-week year high of $89.18 earlier this month.
While VMWare is busy acquiring businesses for growth, the market is abuzz with rumors of their parent EMC being considered by Oracle as a potential acquisition target. Earlier last month, HP surpassed Dell with a $2.35 billion acquisition of data storage player, 3Par.
EMC’s Q3 revenues of $4.21 billion were ahead of the market’s expectations of $4.15 billion, while EPS of $0.30 was in line with the Street’s projections. For the quarter, revenues grew 20% over the year driven by 23% growth in the EMC Symmetrix storage product portfolio. During the quarter, U.S. and Latin America revenues grew 21% over the year. Asia Pacific and Japan revenues had the maximum growth of 28% over the year, while Europe, the Middle East, and Africa grew 14% over the year.
EMC projects full-year revenues of $16.9 billion with EPS of $1.25. The market was expecting revenues of $16.7 billion and EPS of $1.21.
EMC and Oracle
As I said earlier, both Larry Ellison and Mark Hurd are great at successfully integrating acquisitions. A $50 billion acquisition of EMC by Oracle could help Oracle leapfrog to the position of leader in the virtualization and data storage segment. The company’s earlier attempt to enter the virtualization market with Oracle VM has not been very successful. VMWare is a good acquisition target, and I won’t put it past Oracle to be evaluating the EMC acquisition just to get hold of their 85% stake in VMWare.
EMC’s stock is trading at $21.21, taking its market capitalization to $44 billion. It touched a 52-week high of $21.83 earlier last month.