IDC: Virtualization Rocked by Recession

VMware's recent results barely mask the challenges facing virtualization software companies.
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NEW YORK (

TheStreet

) -- Despite impressive

third-quarter results

from

VMware

(VMW) - Get Report

, the virtualization market is still reeling from the effects of the recession, according to the latest research from analyst firm IDC.

VMware, a virtualization trailblazer and

analyst darling

, blew past Wall Street's estimates last week, boosted by strong U.S. government sales. IDC, however, warns that the broader virtualization market has taken a hit during the economic downturn as firms tighten their spending on server hardware.

Just over 16% of new servers shipped during the second quarter were virtualized, according to the firm's research, up from 14.5% in the same period last year. Actual server shipments, however, fell 21% to 246,000, and virtualization software revenue dipped 18.7% to $344 million.

Virtualization, which lets users divide physical hardware into multiple "virtual" chunks, has become popular among users looking to juggle myriad of operating systems and applications. With companies also struggling with budget pressures, VMware and its rivals are pushing virtualization as a way for firms to reduce the amount of server and storage hardware within their data centers.

Oracle

(ORCL) - Get Report

, for example,

snapped up

virtualization specialist

Virtual Iron

earlier this year, and

Citrix

(CTXS) - Get Report

recently teamed up with

Microsoft

(MSFT) - Get Report

in an attempt to challenge VMware.

Even in a slowly recovering economy, there are still plenty of positives for virtualization, which is widely regarded as one of the

hottest technologies

of recent years. Virtualization licenses, for example, grew sequentially in the second quarter, according to IDC.

"We believe that virtualization will be a cornerstone technology as medium and large enterprise organizations around the globe accelerate the need for more dynamic and converged infrastructure," said Matt Eastwood, IDC group vice president, in a statement.

IDC's research also found that more firms are paying for their virtualization software, eschewing the slew of free technologies that are available.

"Despite economic worries, we are seeing the continued increase of paid virtualization platforms, as it now accounts for more than 60% of all x86 virtualization license shipments," said Brett Waldman, IDC research analyst. "This is due to the maturation of virtualization deployments and the need for greater control."

VMware shares rose 72 cents, or 1.62%, to $45.09 in early trading Monday, mirroring the broader advance in tech stocks that saw the Nasdaq rise 1.08%.

-- Reported by James Rogers in New York