VMware Q1 2008 revenues beat street expectations

VMware reported strong first quarter growth today, which seemed to calm many of the “buy and sell” folks over on Wall Street. The stock turned south earlier this year after VMware told investors that they wouldn’t be able to double revenue growth every quarter. It seems these investors may have finally come to grips, at least for now. The stock has been bouncing around like a virtual machine with resource problems – thanks to DRS, HA and VMotion.

VMware’s stock price rose 15 percent after late trading today, thanks to an impressive report on the company’s first quarter. Revenues for Q1 2008 were $438 million, an increase of 69 percent compared to the first quarter of 2007. Net income for the same period also went up, from $41 million in 2007 to $43 million in 2008.

First-quarter U.S. revenues grew 65% compared to the year-ago quarter on increased demand from large enterprises standardizing on the VMware platform and an increase in the number of smaller transactions delivered through VMware channel partners. International revenues increased by 74% and were driven in part by triple-digit business growth in emerging markets.

Software license revenue grew 73% compared to the same period last year to $294 million and service revenue, including support, subscription and professional services, increased 62% to $144 million.

But remember the old saying – “You have to spend money to make money”. Well, VMware spending on research and development more than doubled last quarter to $119 million. Sales and marketing spending also shot up, rising 72% to 149 million. With the threat from competitor hypervisor technologies, VMware will no doubt continue to spend money to advance their product through increased R&D, acquisitions and hiring more engineers. As it stands now, the company has more than 5,700 people in its employment. You can assume that number will grow.

VMware continues to expect 2008 revenue growth of approximately 50% compared to 2007. And second quarter 2008 revenues are expected to increase approximately 55% compared to the second quarter of 2007.

“Q1 was another quarter of increased demand for VMware virtualization products and solutions,” said Diane Greene, president and chief executive officer of VMware. “Our strategy to continually deliver superb quality and market-expanding solutions well ahead of the competition is working and we’re advantaging our lead with our well developed multi-tier partner distribution model. We are seeing customers progress more rapidly through the virtualization adoption path; many are now moving right into a VMware-based architecture so that they can pool their resources, deliver capacity on demand, and also get an insurance policy for business continuity and disaster recovery.”

In a declining economy, virtualization products tend to offer a very high return on investment. So if the economy continues on this path, it could put VMware in a pretty good position.