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VMware Still Limping from the Virtual Nail in its Reeboks

Earnings came to $33 million, down 36.5% year-over-year

VMware on Ulitzer

VMware picked up a nail in its sneakers in Q1 and was still limping in Q2 but now thinks things might get a little bit better the rest of the year.

It said Wednesday that its earnings in Q2 came to $33 million, or eight cents a share, down 36.5% year-over-year, on flat revenues of $456 million.

Wall Street only had it down for revenues of $453 million. It liked the results and pushed the stock up 8% to $33.81 after-hours.

Blaming the challenging macro economic environment, the virtualization maven said Q2 license revenues declined 20% year-over-year to $228 million while services revenues, which include software maintenance and professional services, were up 32% to $228 million.

Q1 was the first time VMware license revenue ever fell and the company worried that the market's newfound cash-preserving impulses would force its Q2 revenues to be down or at best flat. It came in at the high end of its expectations.

Q2 US revenues declined 3% to $234 million. International revenues grew 3% to $222 million. It confessed that large deals were hard to close.

However, looking into his crystal ball CFO Mark Peek, who clearly didn't have a handle on the situation a quarter ago, raised the company's forecast. "Although we remain cautious about the global economic conditions," he said, "we are beginning to get somewhat better visibility into our business and expect third-quarter revenues to be between $465 million and $480 million [basically flat] and revenues for the full year 2009 to grow 1%-3% compared to 2008."

There are no super-large deals on the Q3 horizon and VMware worries about Gartner's raised prediction of depressed IT spending but it's confident enough to have added 200 people.

On a non-GAAP basis, VMware earned $80 million, or 20 cents a share, in the second quarter, a tad better than the 19 cents expected in the second quarter.

It said its non-GAAP operating income dropped 14% to $96 million but its non-GAAP operating cash flow increased 19% year-over-year to $233 million; and its GAAP operating cash flow increased 62% year-over-year to $243 million. Margins are frazzled.

The company had $2.3 billion in the bank, up 48%, and total deferred revenues of $934 million, up 30%, as of June 30.

The company says it's been able to move from its flagship VMware Infrastructure 3 to vSphere 4 "flawlessly." The new widgetry has been downloaded 250,000 times in the last eight weeks.

VMware is now sending out various management templates, expects to unveil its reworking desktop virtualization VMview with the new protocol soon and will announce a batch of public cloud service providers using vSphere towards the end of August.

VMware CEO Paul Maritz said Goldman Sachs is putting its money on VMware being the leader in desktop virtualization. But it'll take a while to turn the interest seen into significant revenues, he said.

More Stories By Maureen O'Gara

Maureen O'Gara the most read technology reporter for the past 20 years, is the Cloud Computing and Virtualization News Desk editor of SYS-CON Media. She is the publisher of famous "Billygrams" and the editor-in-chief of "Client/Server News" for more than a decade. One of the most respected technology reporters in the business, Maureen can be reached by email at maureen(at)sys-con.com or paperboy(at)g2news.com, and by phone at 516 759-7025. Twitter: @MaureenOGara

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