VMware license revenue slips 20 percent

Overall revenue was flat, the first time sales haven't increased at VMware since it became a public company two years ago

VMware reported a drop in profit for the second quarter as businesses cut spending on new software amid the tough economy.

Revenue was flat from the year before, at $US456 million, while net profit declined to $US33 million, from $US52 million in the second quarter last year, the company said Wednesday.

New license revenue, which is seen as an indicator of future growth, declined 20 percent from a year ago to $US228 million, VMware said. It blamed "the challenging macroeconomic environment."

The results beat the expectations of financial analysts, however. VMware had warned in April that revenue might decline for the quarter, and analysts had been forecasting a 1 percent drop in sales, to $US452 million.

Excluding one-time charges, VMware's profit for the quarter was $US80 million, or $US0.20 per share, better than the analyst forecast of $US0.19 per share, Thomson Reuters said.

VMware warned when it reported its first-quarter results that revenue might be flat or slightly down this quarter. It cited the recession and the introduction of a new product, vSphere, in May, which it said would be a distraction for channel partners while they get trained on the new product.

It marks the first time that VMware's revenue hasn't grown since the company went public in 2007. The growth rate had been slowing, however, as VMware became larger and the initial wave of adoption for server virtualization started to slow.

Separately on Wednesday, VMware rival Citrix Systems reported second-quarter revenue of $US393 million, up a fraction from last year, and a profit of $US43 million, up from $US35 million. Product license revenue declined 15 percent, however, the company said.

VSphere is an update to VMware's core virtualization software. The company bills it as a "cloud operating system" that will allow customers to manage and provision server, storage and network resources as if they were a single large computer.

The software includes fault tolerance capabilities and a more scalable hypervisor that should allow customers to run large databases and other enterprise applications on virtualized servers, according to VMware.

With the basic tools for virtualization now a commodity, analysts say vSphere is important for VMware to help it retain a technology lead over rivals Microsoft and Citrix.

VMware plans a further upgrade that will allow companies to transfer virtual workloads between their own data centers and those of cloud service providers such as Terremark and Savvis. Analysts will be listening for news in Wednesday's conference call of when that product will ship.

Also during the quarter, VMware paid $US20 million to buy a 5 percent stake in Terremark, a close partner that uses VMware's software for its managed hosting services.

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James Niccolai

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