VMware's Sales Up 90 Percent in the Third Quarter

Published: October 31, 2007

by Timothy Prickett Morgan

Server and desktop virtualization software maker VMware, a mostly owned subsidiary of disk array maker EMC that has done the hottest initial public offering in 2007, is still not feeling much competitive pressure from its rivals in the virtualization space if its financial results for the third quarter are any indicator.

VMware's sales in the quarter ended September 30 were $357.8 million, up 90 percent, with net income of $64.7 million, up by a factor of 3.4 compared to the dough that fell to the bottom line in the year ago quarter. Software license sales were $247.5 million, up 95.9 percent, and services revenues in Q3 were $110.3 million, up 76.5 percent. In the quarter, VMware raised just over $1 billion from sales of Class A stock in its IPO and $218.3 million for the sale of stock to Intel prior to the IPO. The company paid $359 million in debt to its parent company and when all was said and done had $1.1 billion in cash and equivalents on hand. This is quite a war chest with which to defend the coming attacks by Citrix Systems, Microsoft, and others who want to knock VMware down a peg or two in the server and desktop virtualization arena.

For the nine months ended September 30, VMware had $621.1 million in software license sales, up 88.3 percent, and had $292.3 million in services sales, up 102.4 percent from the first three months of 2006. Total sales for the three quarters so far in 2007 came to $913.3 million, up 92.6 percent.

VMware is obviously poised to blow through $1.3 billion in sales for the calendar year, making it one of the fastest growing software companies of all time and also making it about the same size as Citrix with a much larger market capitalization--$40.6 billion as the market closed on Wednesday. While a 30 to 1 market cap/revenue multiple might seem excessive for VMware, consider that Citrix paid a 500 to 1 multiple when it shelled out $500 million to acquire XenSource to get its hands on the open source Xen hypervisor project and all of the software and partnerships that XenSource has woven around it. Citrix has been on the rise since paying all that cash to get XenSource, but Wall Street only values the company at $7.5 billion by comparison.

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