VMware Reports Second Quarter 2010 Results

Revenue Growth of 48% to $674 Million; GAAP Operating Margin of 15.0%; Non-GAAP Operating Margin of 27.7%; TTM Operating Cash Flows Growth of 3% to $1.1 Billion; TTM Free Cash Flows Growth of 33% to $1.0 Billion

PALO ALTO, Calif., July 20, 2010 — VMware, Inc. (NYSE: VMW), the global leader in virtualization solutions from the desktop through the datacenter to the cloud, today announced financial results for the second quarter 2010:

  • Revenues for the second quarter were $674 million, an increase of 48% from the second quarter of 2009.
  • GAAP operating income for the second quarter was $101 million, an increase of 166% from the second quarter of 2009.  Non-GAAP operating income for the second quarter was $187 million, an increase of 94% from the second quarter of 2009.
  • GAAP net income for the second quarter was $75 million, or $0.18 per diluted share, compared to $33 million, or $0.08 per diluted share, for the second quarter of 2009.  Non-GAAP net income for the second quarter was $142 million, or $0.34 per diluted share, compared to $80 million, or $0.20 per diluted share, for the second quarter of 2009.  
  • Cash, cash equivalents and short-term investments as of June 30, 2010 were $2.8 billion, an increase of 21% compared to a year ago. Total deferred revenues were $1.5 billion, an increase of 58% from the same period a year ago.
  • For the trailing twelve months ended June 30, 2010, operating cash flows were $1.1 billion, an increase of 3% from the same period a year ago.  Trailing twelve month free cash flows were $1.0 billion, an increase of 33% from the same period a year ago.

US revenues for the second quarter increased 43% to $334 million from the second quarter of 2009.  International revenues for the second quarter grew 53% to $340 million from the second quarter of 2009.

License revenues were $324 million, an increase of 42% from the second quarter of 2009. Services revenues, which include software maintenance and professional services, were $350 million, an increase of 54% from the second quarter of 2009. 

“Our strong second quarter results were driven by demand across all products and regions,” said Mark Peek, chief financial officer.  “For the third quarter, we expect license revenues to be flat sequentially and total revenues to increase to a range of $680 and $705 million.  For our 2010 annual revenues, we are raising our guidance to be in the range of $2.725 and $2.8 billion, an increase of 35% to 38% from 2009.”

“We are gratified that customers continue to recognize the value that VMware provides in modernizing infrastructures and providing a pragmatic path to cloud computing,” said Paul Maritz, president and chief executive officer.  “As customers continue on this path, they are looking for a strategic partner to help move them forward, and VMware will continue to invest to deliver solutions that enable IT-as-a-service.”

Recent Highlights & Strategic Announcements

  • On July 13, 2010, VMware announced VMware vSphere 4.1, an updated version of VMware’s flagship virtualization and cloud infrastructure platform.  With VMware vSphere 4.1, VMware once again sets the bar in virtualization, coupling dramatic scalability and performance enhancements with new management capabilities to deliver the most powerful foundation for cloud computing.  The announcement included additions to VMware’s vCenter Family of management products and new packaging for the SMB market.
  • In the second quarter 2010, VMware announced a series of moves to further its Open Platform-as-a-Service (Open PaaS) offerings and enable application portability across private and public cloud environments. The announcements included the acquisition of Gemstone, which introduces sophisticated data-caching capabilities; a new partnership with Salesforce.com, whereby Java and Spring framework developers will be able to deploy new applications into a cloud and leverage Salesforce.com capabilities; and a partnership with Google, whereby the Spring framework will be integrated with Google’s App Engine.
  • On June 10, 2010, VMware announced it is positioned by Gartner, Inc. in the Leaders Quadrant of the Gartner Magic Quadrant for x86 Server Virtualization Infrastructure.  According to the report: “The x86 Server Virtualization Infrastructure market is a foundation for two extremely important market trends - infrastructure modernization and cloud computing.” 
  • On June 9, 2010, VMware and Novell announced an expansion to their partnership with an original equipment manufacturer (OEM) agreement through which VMware will distribute and support the SUSE® Linux Enterprise Server operating system at no additional cost to vSphere customers.   With this agreement, customers can more easily and cost-effectively virtualize Linux applications, accelerate their evolution to a fully virtualized datacenter and simplify portability of their applications to cloud environments. 

VMware plans to host a conference call today to review its second quarter results and to discuss its financial outlook.  The call is scheduled to begin at 2:00 p.m. PT/ 5:00 p.m. ET and can be accessed via the Web at http://ir.vmware.com. The webcast will be available live, and a replay will be available following completion of the live broadcast for approximately 30 days. 

1Gartner, Inc “Magic Quadrant for x86 Server Virtualization Infrastructure,” Thomas Bittman et al, May 26, 2010.

About VMware

VMware delivers virtualization and cloud infrastructure solutions that enable IT organizations to energize businesses of all sizes.  With the industry leading virtualization platform – VMware vSphere™ – customers rely on VMware to reduce capital and operating expenses, improve agility, ensure business continuity, strengthen security and go green. With 2009 revenues of $2.9 billion, more than 190,000 customers and 25,000 partners, VMware is the leader in virtualization which consistently ranks as a top priority among CIOs. VMware is headquartered in Silicon Valley with offices throughout the world and can be found online at www.vmware.com

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VMware and VMware vSphere are registered trademarks or trademarks of VMware, Inc. in the United States and/or other jurisdictions. All other marks and names mentioned herein may be trademarks of their respective companies.

About the Magic Quadrant

The Magic Quadrant is copyrighted 2010 by Gartner, Inc. and is reused with permission. The Magic Quadrant is a graphical representation of a marketplace at and for a specific time period. It depicts Gartner's analysis of how certain vendors measure against criteria for that marketplace, as defined by Gartner. Gartner does not endorse any vendor, product or service depicted in the Magic Quadrant, and does not advise technology users to select only those vendors placed in the "Leaders" quadrant. The Magic Quadrant is intended solely as a research tool, and is not meant to be a specific guide to action. Gartner disclaims all warranties, express or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose.

Use of Non-GAAP Financial Measures

Reconciliations of non-GAAP financial measures to VMware’s financial results as determined in accordance with GAAP are included at the end of this press release following the accompanying financial data. For a description of these non-GAAP financial measures, including the reasons management uses each measure, please see the section of the tables entitled “About Non-GAAP Financial Measures.”

Forward-Looking Statements

This press release contains forward-looking statements including, among other things, statements regarding VMware’s third quarter and annual revenue projections, the value of our technology and products to customers and its role in information technology infrastructures and cloud computing, our plans for future investments and partnering with our customers and the development and implementation of our Open PaaS offerings for private and public cloud environments with customers and business partners such as Salesforce.com and Google.  These forward-looking statements are subject to the safe harbor provisions created by the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those projected in the forward-looking statements as a result of certain risk factors, including but not limited to: (i) adverse changes in general economic or market conditions; (ii) delays or reductions in consumer or information technology spending; (iii) competitive factors, including but not limited to pricing pressures, industry consolidation, entry of new competitors into the virtualization market, and new product and marketing initiatives by our competitors; (iv) factors that affect timing of license revenue recognition such as product announcements and beta programs; (v) our customers’ ability to develop, and to transition to, new products and computing strategies such as cloud computing and IT-as-a-service, (vi) the uncertainty of customer acceptance of emerging technology; (vii) changes in the willingness of customers to enter into longer term licensing and support arrangements; (viii) rapid technological and market changes in virtualization software and platforms for cloud and desktop computing; (ix) changes to product development timelines; (x) VMware’s relationship with EMC Corporation, and EMC’s ability to control matters requiring stockholder approval, including the election of VMware’s board members; (xi) our ability to protect our proprietary technology; (xii) our ability to attract and retain highly qualified employees; (xiii) the successful integration of acquired companies and assets into VMware; and (xiv) fluctuating currency exchange rates.  These forward looking statements are based on current expectations and are subject to uncertainties and changes in condition, significance, value and effect as well as other risks detailed in documents filed with the Securities and Exchange Commission, including our most recent reports on Form 10-K and Form 10-Q and current reports on Form 8-K that we may file from time to time, which could cause actual results to vary from expectations. VMware assumes no obligation to, and does not currently intend to, update any such forward-looking statements after the date of this release.