VMWare looks ahead at Microsoft, year-end financials and morale

updated: VMWare, whose recent headlines have included an ousted CEO and a re-pricing of its employee stock options, reported second-quarter earnings of $92 million, or 23 cents per share, up from $52 million, or 16 cents per share, for the same quarter a year ago. Revenues were $456 million, an increase of 54 percent over last year. Revenues were slightly lower than Wall Street's expectations of $458.6 million while EPS was on-target.

Following the ousting of co-founder and former CEO Diane Greene earlier this month, the company said it would not adjust its fiscal year guidance but warned that its revenues for the year "will be modestly below the previous guidance of 50% growth over 2007." Last year, the company had revenues of $1.3 billion. The company said today the growth instead will be 42 percent to 45 percent for the year and that third quarter revenues are expected to be $462 million to $468 million, short of Wall Street's consensus of $497.3 million.

The company noted that, in part, the reduction is due to Microsoft's entry into the space. Company CFO Mark Peek said Microsoft "has only a subset of the product solutions we have" and said he was unaware of having lost any deals to Microsoft. However, sales could slow as potential customers slow their decisions while they can do their own research.

In a conference call with analysts, new VMWare President and CEO Paul Maritz, a former long-time Microsoft executive,  paused to comment about his 15 years at Microsoft, highlighting his role as a writer of the "playbooks" that Microsoft used to go haed-to-head with companies such as Netscape, Lotus, IBM, Oracle and others in various categories.  He said:

I know they are a formidable but not invincible competitor. I know they can afford to play a long waiting game. I know from experience, where the competitor has the lead and invests and innovates to stay ahead, they can be very hard to catch - even for Microsoft. We now have a lead.

The company, after hiring approximately 2,000 people in the last year, said it would institute a "hiring pause," and only bring on new people for key positions, a move that could reduce future expenses.

Maritz also noted VMWare's position as a virtualization software leader at a time when companies are looking at cloud computing and the opportunities it presents. "VMWare is at the center of this transition," he said.

Maritz, in his opening remarks to analysts, paused to recognize and thank Greene "for all her achievements and bringing the company this far." Asked about morale at the company following Greene's ouster, Maritz said he is spending time communicating with and getting to know key technical employees. "The leadership change is still a concern of mine," he said. "I'm hopeful that we'll be able to weather the transition with as little negative impact as we can."

The company went public on Aug. 14, with shares topping out at more than $124 before starting on a steady decline. Shares were up 2.8 percent in regular trading today, closing at $38. In after-hours trading, shares fell more than 14 percent to $32.50.

By the numbers:

• U.S. revenues grew 43% to $240 million from last year.
• International revenues grew 68% to $216 million, driven by strength in Europe and Australia.
• Software license revenue grew 39% to $284 million.
• Service revenues, which include support, subscription and professional services, were $172 million, an increase of 85% from the second quarter of 2007.
• The company announced the acquisition of B-hive Networks, a privately-held application performance management software company. The acquisition closed on July 1.