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VMware faces threats from economy, Microsoft


By Jeff Feinman
October 31, 2008 — 
Given this summer’s departures of several top VMware executives, including co-founders Diane Greene and Mendel Rosenblum, one might assume the virtualization company’s third-quarter earnings report would not present a pretty picture.

As it turns out, VMware posted a 54% increase in GAAP operating income, to US$101 million, over the third quarter of 2007. Total revenue for the third quarter of 2008 came in at $472 million, a 32% increase from the year-ago quarter. And U.S. revenue grew 24% over the prior year’s quarter, to $249 million.  

Paul Maritz, Greene’s successor as VMware CEO, said the results indicated that “despite the market turmoil and the loss, obviously, of Diane herself and her husband Mendel, in addition to [the departure of research and development head] Richard Sarwal, our organization is stepping up to the challenges. We are asking our internal people to take on additional responsibility.”  

Maritz said VMware had not experienced any major competitive losses during the quarter to Microsoft, which continues to gain steam in the virtualization segment with its Hyper-V hypervisor. “Clearly, we take Microsoft very seriously and keep our eyes very closely focused on them,” he said. “We did see a couple of customers indulge in bake-offs—direct, head-to-head product comparisons—and by and large, those worked to our favor.”

But one analyst said that despite the solid third-quarter numbers, VMware has looming challenges, especially from Microsoft. “The abrupt departure of the VMware founders most likely had a more profound internal disruption, rather than having an immediate outward effect on the sales pipeline,” said Theresa Lanowitz, founder of analyst firm Voke. “It is clear, however, that VMware is not in the same position of virtualization leadership and dominance they once enjoyed.”

Lanowitz added that “VMware, with its engineering focus, was unable to capitalize on a window of opportunity in the marketplace” and predicted the company “will eventually be seen as another casualty of Microsoft’s supremacy.”

VMware executives expressed more concern about current economic conditions than of a competitive threat from Microsoft or other companies.

“The U.S. and global economies continue to be challenged,” said Mark Peek, VMware’s CFO. “While we are very confident in the long-term health of our business, the global financial crisis is creating customer uncertainty around fourth-quarter IT spending. We have limited visibility on how our customers will respond in their short-term purchasing.”


Related Search Term(s): virtualization, Microsoft, VMware


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