VMware's Sales Grow 73 Percent in the Second Quarter

Published: July 18, 2006

by Timothy Prickett Morgan

Storage vendor EMC may have been suffering in the second quarter as customers stopped buying its older products and delayed orders until the company could ship its latest Symmetrix DMX-3 and Clariion CX-3 arrays, but its VMware subsidiary, which is the revenue and shipment market share leader in the nascent server virtualization business that is white-hot right now, continues to see strong sales growth.

In the second quarter, the VMware business posted sales of $157 million, up 73 percent from the prior year, despite the fact that in February it began distributing a beta version of its GXS Server entry hypervisor product, called VMware Server, for free. As I report elsewhere in this issue, VMware announced it would charge $350 per year for an normal business hour support contract for VMware Server and $450 per year for a 24x7 support contract. It will be interesting to see how this price cut (since GSX Server was considerably more expensive at $2,500 for the same two-socket server configuration) will be offset against the much wider distribution that VMware Server, which saw 700,000 freebie downloads in the five months of the beta program.

VMware is understandably proud that it has reach an annual run rate of around $630 million, which is almost exactly what EMC paid to acquire VMware three years ago. But, its growth rate has slowed, on average, across a year, even if growth in the second quarter was the highest it had seen in five quarters. In the first quarter, VMware booked sales of $131 million. The EMC subsidiary (which is a stickler for preserving its name and says it keeps its own independent sales, marketing, and research figures but which does not provide the latter or its profit margins) had sales of just under $100 million in 2003, $218 million in 2005, and $387 million in 2005. Depending on how Microsoft's Virtual Server 2005 affects the market (this product is free) and how XenSource prices its future Xen hypervisor management products, VMware could be hard-pressed to keep such a high growth rate on sales. But, so far, so good, which is good for EMC.

RELATED STORIES

VMware Delivers Eponymous Freebie Hypervisor, Sets Support Prices

VMware Offers New Packaging and Pricing with ESX Server 3