Speaking on a conference call on Wednesday, Oct. 24, about VMware's Q3 results, company CEO Diane Greene told press and financial analysts that Citrix Systems Inc.'s recent acquisition of open source virtualization startup XenSource had thus far failed to dampen VMware's high-flying business.
"We haven't seen any impact," said Greene. And judging from Greene's further comments, she doesn't appear worried about this latest competitor to VMware. In terms of the desktop opportunity, "while Citrix has been successful in that space, they're by all accounts on less than 10% of the desktops out there. We see -- and our customers validate -- that we have with VMware [Virtual] Infrastructure a phenomenal foundation for doing this."
Exactly how big is the desktop opportunity? Greene was noncommittal. "We see a lot of interest in the desktop opportunity, and we have a lot of installations already out there, but there are some 500 million enterprise desktops already running, and how fast those will become virtualized is anyone's prediction."
Perhaps to the dismay of the financial community, Greene and CFO Mark Peek also declined to give future guidance on revenue. They did acknowledge having seen "seasonality" in VMware's business in the past. So if history is any indication, the upcoming fourth quarter should be even stronger, as "more IT budgets tend to get spent," said Peek.
Greene and Peek also discussed the ongoing shift in VMware's revenue mix. Last quarter, licensing revenue grew an astonishing 96% year over year, although Peek argued that if you normalized the data over previous quarters, that number was more like an 88% growth rate. "It's not really an acceleration in our license revenue," he said. Peek predicted that in the short term "the mix of license and revenue will stay relatively constant," that as the company adds "more and more to our portfolio and to longer service agreements, we would expect service revenue to increase over time."
Exactly how all this will play out is unclear though, Greene said. Whereas the majority of VMware's customer base has traditionally been in the enterprise, the company is expanding into different customer segments like small and medium-sized businesses. Thus, while the average selling price of VMware products is still high, "We see two forces: one where customers are enterprises standardizing on VMware Infrastructure, and doing more big deals" and, at the same time, "a lot of smaller customers," she said. Ultimately, "it's hard to predict; those two effects could cancel each other out."
Whatever the case, things are going extremely well for the company. For Q3, the company's first as a publicly traded company, total revenue rose 90% year over year to $357.8 million, beating analyst forecasts of $333 million. Earnings were $0.23 per share, again beating analyst estimates of $0.17 per share. VMware's stock price closed the day at $103.52, an increase of more than 80% over its first day closing price of $57.51 on Aug. 15. This quarter also marked a milestone, noted Peek: For the first time, VMware's revenue for the trailing 12 months exceeded $1 billion.
Let us know what you think about the story; email: Alex Barrett, News Director.