VMware treated Wall Street to better than expected earnings for the first quarter or 2010, handily beating estimates. Revenue jumped 35% year over year to $633.5 million, and profits increased 12% to $78.4 million. The company also raised guidance for the coming year by $180 million to between $2.63 billion and $2.73 billion. But investments the company has made outside of its core vSphere and vCenter business have yet to bear fruit.
The good news came from multiple fronts: “pent-up demand” from enterprises, carry-over from the previous quarter, strong results from Europe and Asia including a windfall $8 million dollar enterprise license agreement (ELA), and a successful promotion for the its vSphere Essentials and Essentials Plus bundles, said VMware executives on an earnings call yesterday.
Investors were particularly interested in the questions of ELA renewals and average selling price (ASP).
VMware first started offering ELAs in 2007, and the first of those have started to come up for renewal. In 2007, VMware was the only game in town, but the competition has improved since then. While not providing specific numbers, CEO Paul Maritz said that the company was “gratified by the response for renewing ELAs,” and that “almost without exception ELAs that have come up have renewed.” Furthermore, the renewed ELAs tend to be for larger deployments.
Being able to maintain ASPs, meanwhile, signals to investors that the company is not excessively discounting prices and facing strong competition. And balancing ASPs will be harder for VMware as it deepens its reach in small-to-medium businesses. This quarter, investors were gratified by the fact that ASPs were flat, depsite its Essentials promo. At the same time, since the company does not break out revenue by product category, it is hard to know for certain how much of a material impact low-end SKUs actually had on VMware’s quarter.
However, VMware’s bread and butter remains vSphere and the vCenter family, and not investments in SpringSource, Zimbra, or desktop virtualization, the company admitted. With respects to desktop virtualization, “there’s a lot interest from customers,” said VMware COO Tod Nielsen as they prepare to move to refresh an aging desktop fleet and move to Windows 7. “They want to virtualize at the same time.” At the same time, “when the market is going to tip, we don’t know. Our eyes are on the ball and are making sure we will be there [when it does.]”