Shift Toward Cloud Adoption Boosts 2011 VMware Revenue

A solid expansion of revenue and profit in its fourth fiscal quarter resulting from a shift in customer spending towards cloud computing helped drive a strong year of growth for VMware in 2011 and helped set high expectations for solid growth in 2012, the company said on Monday.

A big part of that 2011 growth came from maintenance revenue, which is growing faster than licensing revenue and is expected to continue to do so into 2012 and beyond.

VMware on Monday reported revenue for its 2011 fourth quarter, which ended December 31, of $1.06 billion, up 27 percent from the fourth quarter of 2010. The company also reported income for the fourth quarter of $200 million, or 46 cents per share, compared to $120 million, or 28 cents per share, for the same period last year.

For all of 2011, VMware reported revenue of $3.77 billion, an increase of 32 percent from 2010. Income for all of 2011 better than doubled to $724 million, or $1.68 per share, compared to $357 million, or 84 cents per share, for 2010.

"Q4 provided a good end to a good year," said Paul Maritz, VMware CEO.

The financial results for 2011 reflect customer investment that goes beyond the virtualization technology which VMware pioneered, Maritz said.

"2012 will be the year in which we expect our customers to accelerate beyond virtualization and operate in a cloud-like manner," he said.

For that reason, VMware will focus on investing in three main categories of technology: cloud architecture, application platforms for new applications and for running legacy applications in the cloud, and cloud management, Maritz said.

Investors liked what they heard from VMware and responded by driving the company's share prices up about 4.7 percent to over $90 per share a couple hours after the stock market closed. Prior to market close, share prices were down about 2.4 percent for the day.

For its fourth quarter, license revenue grew by 22 percent over that of last year to reach $514 million, said VMware CFO Mark Peek. However, during that same period, software maintenance grew 34 percent while professional services grew 22 percent.

For the entire year, license revenue grew 31 percent to $1.8 billion, while software maintenance grew 34 percent to $1.6 billion and professional services grew 20 percent to $286 million, Peek said.

"We expect maintenance revenue to grow faster than license revenue in the next 24 months," he said.

Peek said that VMware is cautious about the potential for IT spending in 2012, in part because of the economic slowdown in Europe. However, he said VMware expects first quarter 2012 revenue to be between $1.015 billion and $1.040 billion, or up between 20 percent and 23 percent over the same period as last year.

However, Peek said, growth in licensing revenue for the quarter will only reach 10 percent to 12 percent because of a difficult comparison with the first quarter of 2011 when VMware signed five particularly large accounts.

For all of 2012, VMware expects revenue to be between $4.475 billion and $4.6 billion, or up 19 percent to 22 percent, Peek said. License revenue for the year should grow between 11 percent and 16 percent, he said.

VMware currently has 11,200 employees, with 300 new people joining the company in the fourth quarter, Peek said. He said the company expects to continue hiring at a "brisk pace" in 2012.

Next: Staying Ahead Of The Competition

When asked by a financial analyst to discuss VMware's management offerings versus those of its competitors, Maritz said that VMware is more focused on customers who are running private clouds on top of their virtualized data centers, with private clouds becoming a bigger and bigger part of customers' infrastructures.

Maritz also said that VMware is developing integrated suites of products that tie virtualized infrastructures and private clouds to let customers focus less on the technical side of cloud computing and more on their own business operations.

Maritz also said that he does not see any shift in the market dynamics between VMware and its primary competitor, Microsoft. He said he expects Microsoft to release Hyper-V 3 by the end of 2012, but that VMware will continue to "reliably and predictably" deliver new products throughout the year.

"In the past, we've been able to turn the crank faster than Microsoft, and expect that to (continue) this year," he said.