VMware Tops Revenue Estimates

First-quarter profit climbs slightly.
By Ivy Lessner ,

Updated from 4:26 p.m. EDT

SAN FRANCISCO --

VMware's

(VMW) - Get Report

first-quarter revenue outstripped the Street's expectations Tuesday, but the company's second-quarter forecast came up short.

Revenue at the Palo Alto, Calif. virtualization software developer rose 69.4% to $438.2 million, from $258.7 million for the same quarter of last year. Analysts were expecting a top line of $422.4 million, according to Thomson Financial.

Net income grew 4.9% to $43.1 million, vs. $41.1 million in the year-ago period. EPS fell back a penny, year over year, to 11 cents, on a share count that was 20% higher than a year ago.

Excluding special items, EPS was 22 cents, in line with analysts' expectations.

The company reaffirmed its prior guidance for full-year revenue growth of 50% and said second-quarter revenue would rise 55% year over year, implying a top line of $460 million. Analysts were looking for second-quarter revenue of $463.6 million.

The stock was up $1.95, or 3.5%, to $58.02 in after-hours trading.

The weak dollar reduced first-quarter operating margin by 225 basis points to 24%, CFO Mark Peek said on the conference call, as international expenses were paid in local currencies.

The percentage of VMware's business continues to shift to international markets.

The U.S. now accounts for 51.3% of revenue, vs. 52.6% one year ago. Outside the U.S., the company had triple-digit bookings bookings in 15 countries, most of them emerging markets.

In India and China, where legacy systems are not an issue, "companies are in a hurry, deploying VMware architecture as fast as they can roll it out," CEO Diane Greene said.

U.S. revenue grew 65% during the quarter, while international revenue grew 74%.

"Our product suite has a very high return on investment," Greene said. "That puts us in a very good position for getting wallet share as the economy gets a little more uncertain." Large deals, valued at $1 million and up, made up 20% of bookings during the quarter, Greene said in an interview. Total bookings were not disclosed.

Deferred revenue increased as the company convinces more customers to sign enterprise agreements, which shift VMware's revenue mix away from license fees and into contracts for service and support, or annuity-type payments over time. Enterprise agreements made up 20% of bookings, an acceleration over the previous year, Peek said. Deferred revenue grew 16% to $641.1 million from $552.8 million during the same quarter of the prior year.

Storage hardware maker

EMC

(EMC)

, which is a majority owner of VMware, reports first-quarter results before the market opens Wednesday.

Competitor

Citrix

(CTXS) - Get Report

, which sells XenSource virtualization software, reports earnings Wednesday after the market closes. And

Microsoft

(MSFT) - Get Report

, which launched Windows Server 2008 with a beta version of its Hyper-V virtualization software during the quarter just ended, reports results Thursday after the close.

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