VMware says revenue may decline for the first time

Profits are up but revenue growth will be flat or might even decline next quarter, it says

VMware reported a first-quarter profit on Wednesday, but said sales are being hit by the recession and it might report its first-ever drop in revenue next quarter.

Revenue for the period to March 31 was US$470 million, up 7 per cent from the same quarter last year but a fraction below what analysts had predicted, according to Thomson Reuters.

License revenue declined 13 per cent from a year ago, to $257 million, as customers reduced their IT spending during the recession, VMware said. The drop was offset by a 48 per cent jump in service revenue, which is becoming a larger part of VMware's business.

Net income for the quarter was US$69.9 million, or $0.18 per share, up from $43.1 million, or $0.11 per share, in the first quarter of 2008. Excluding one-time charges, the earnings were $0.25 per share, up from $0.22 a year earlier. That beat the estimates of financial analysts, who had forecast a 10 per cent drop in earnings, to $0.20 per share.

The tough economic climate, combined with the transition to a new version of VMware's core software that was announced Tuesday, will depress the company's sales in the current quarter, CFO Mark Peek said in a statement.

"As a result, we expect our second-quarter revenues will be flat, or even down, compared to the second quarter of 2008," he said.

That would be a first for VMware, which has seen its revenue climb every quarter since it went public two years ago. The growth has been slowing, however, as VMware grows larger and the initial wave of virtualisation adoption starts to slow.

CEO Paul Maritz called the first-quarter results "solid" given the challenging climate.

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James Niccolai

IDG News Service
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