Despite sending shockwaves through the tech sector with a

much weaker-than-expected

first-quarter forecast, software maker


(VMW) - Get Report

remains bullish about the long-term prospects for virtualization technology.

VMware, a trailblazer in virtualization, recently issued

first-quarter sales guidance

of $475 million, below analysts' estimates of $496.5 million. If the company's revenue comes in as expected, it would mark the first ever sequential decline in VMware's sales.

Like VMware, virtualization rival


(CTXS) - Get Report

also expects a year-over-year drop in its first-quarter revenue, underlining the uncertainty clouding technology budgets.

Touted as the solution to users' sprawling server infrastructures, virtualization has been one of the hottest technologies of the last few years. After plenty of hype from firms such as VMware, Citrix,


(MSFT) - Get Report



(IBM) - Get Report

, however, has virtualization finally had its day?

"We definitely don't think that that's the case," Tod Nielsen, VMware's chief operating officer, told

. "Virtualization is still a strategic priority for CIOs, so I'm not worried that this decline means that the run is over. It's just the fact that this economy is affecting everybody."

Virtualization software, which lets multiple operating systems run in the same computer, has become synonymous with VMware in recent years. Touting its technology as a way for users to streamline their hardware infrastructures, the software company has risen from relative obscurity to more than 130,000 customers in just over a decade.

Despite enjoying strong revenue growth in their recent fourth-quarter results, however, both VMware and Citrix are clearly bracing themselves for bumps in the road ahead.

"We have never seen an economy like this before," said Nielsen, explaining that no companies could realistically predict the length and breadth of the current recession.

Nielsen, who was CEO of

Borland Software


prior to joining VMware in January, and also spent time at


(ORCL) - Get Report


BEA Systems

and Microsoft earlier in his career, still foresees a rosy future for his new employer's software.

"When you look at the percentage of servers that are out there that are virtualized, there's still a tremendous opportunity," he said. "The numbers I have heard from analysts is that anywhere between 11% and 13% of servers are virtualized, so it's a fraction of the opportunity."

Even networking giant


(CSCO) - Get Report

is said to be jumping on the virtual bandwagon, with the rumored launch of a

blade server

running VMware software.

According to recent research by


, an IBM user group, these are the early days for virtualization. The survey of almost 400 IT professionals found that while virtualization is on firms' radars, most are companies still learning about the technology.

The study found that few virtualization initiatives are truly "enterprise" in their scope, and warned that the biggest barriers to the technology are typically organizational rather than technical.

These sentiments are echoed by Galen Schreck, an analyst at technology research firm Forrester.

"Companies have rapidly adopted server virtualization over the past few years, but there are big differences in their use of the technology," he wrote in a recent note. "Most companies are able to reduce server hardware spending, but many don't realize an ongoing reduction in management costs."

Despite the challenges involved in virtualization technology, analysts have already identified rich pickings for companies such as VMware outside of the traditional server space.


, for example, expects firms' budget pressures to accelerate the adoption of desktop virtualization, as users look for ways to manage mobile and offshore workers and control spiraling support and maintenance costs.

Centralized Virtual Desktop (CVD) technology could offer the answer, according to Matthew McCormack, a client computing consultant for IDC's European Systems Group.

"Market maturity remains early for CVD and desktop virtualization in general, but greatly increased business interest is starting to drive more adoption," he wrote in a recent statement. "2009 will be a developmental year for desktop virtualization technology with lots of pilot activity. From 2010 we'll start to see the technology enter the mainstream."