SAN FRANCISCO -- VMware (VMW) - Get Report executives pinned its reduced fortunes squarely on the weak economy Tuesday.

The company's second-quarter revenue suffered from slower-than-expected growth, and VMware projected full-year revenue growth of 42% to 45%, down from more heady levels of 69% in the first quarter and nearly 90% in late 2007.

"This is a company with good fundamentals, coming down from hyper-growth to strong growth," newly named CEO Paul Maritz said in an interview. "We're living through the maturation process."

The company's full-year revenue growth projections imply a range of $1.88 billion to $1.92 billion. Analysts were expecting $1.96 billion.

The virtualization software developer said Tuesday that second-quarter revenue grew 53.7% to $456.1 million, from $296.8 million in the year-ago period. Analysts were looking for $458.6 million, according to Thomson Reuters.

Net income rose 53% at the Palo Alto, Calif. company to $52.3 million, or 13 cents a share, from $34.2 million, or 10 cents a share, in the year-ago period.

Excluding special items, EPS was 23 cents, in line with analysts' expectations.

For the third quarter, revenue is expected to range from $462 million to $468 million. Analysts were projecting revenue of $497.3 million.

The stock was down $5.58, or 14.7%, to $32.39 in extended trading.

The company lowered full-year revenue expectations in recent weeks. The culprits, according to the company, are a combination of the economic downturn in the U.S. and VMware's 2007 shift to selling enterprise license agreements, which are more difficult to close in a troubled economy.

When the economy was strong, the move toward ELAs -- which commit a customer to a larger deal over time in exchange for discounted pricing -- played a big role in boosting the company's growth from the second to the fourth quarters of 2007.

In an ELA, 50% to 65% percent of the revenue is recognized up front, with the remainder paid over the life of the contract as services fees.

But in the second quarter, U.S. businesses became reluctant to sign ELAs. "We believe the difficult economy lengthens the sales cycle on ELAs, especially in the U.S.," CFO Mark Peek said on the conference call. Companies considering ELAs extended the deal cycle past the quarter's end by requesting additional information, hurting both revenue and deferred revenue, he added.

Peek gave an example of a customer who had been considering a $2 million enterprise license agreement but opted instead to spend just $300,000 upfront for a product license, with the prospect of buying more products in coming quarters as the economic situation plays out.

Some of the ELA deals that slipped out of the quarter have already closed, but Peek advised that he expects the trend toward delayed closings to continue.

Maritz said ELAs are likely to make VMware's quarterly revenue lumpy. "When you move to large deals ... you're exposing yourself to more erratic behavior in quarter-to-quarter revenue." Another factor affecting growth this year: VMware is beginning to experience the revenue seasonality typical to large software companies, Maritz said.

Although ELAs expose the company to quarterly swings, they are strategic to VMware's long-term success, Maritz said. "We're not going to sacrifice a strategic win for a tactical benefit."

Deferred revenue grew 74% year over year to $721.3 million, Peek said.

VMware will control expenses in coming quarters by ending its hiring binge, which Maritz characterized as a "pause" rather than a freeze. Taking advantage of the capital infusion of its initial public offering, VMware has hired 2,000 employees over the past 12 months, bringing the total to 6,000. Operating expenses for new hires will continue to rise in the short term as recent hires are still being phased in.

VMware faces a new competitive threat from

Microsoft

(MSFT) - Get Report

, which last month added the commercial release of its virtualization capability to Windows Server. VMware also competes with open-source virtualization provider

Citrix

(CTXS) - Get Report

, which reports earnings Wednesday after the session.