VMware Reports Third Quarter 2010 Results

Revenue Growth of 46% to $714 Million
GAAP Operating Margin of 13.2%; Non-GAAP Operating Margin of 28.6%
Trailing Twelve Months Operating Cash Flows Growth of 8% to $1.1 Billion; Trailing Twelve Months Free Cash Flows Growth of 39% to $1.1 Billion

Supplemental Financial Tables Non-GAAP Financial Measures

PALO ALTO, Calif., October 18, 2010 —VMware, Inc. (NYSE: VMW), the global leader in virtualization and cloud infrastructure, today announced financial results for the third quarter 2010:

Revenues for the third quarter were $714 million, an increase of 46% from the third quarter of 2009.
GAAP operating income for the third quarter was $94 million, compared to $23 million for the third quarter of 2009. Non-GAAP operating income for the third quarter was $204 million, compared to $109 million the third quarter of 2009.
GAAP net income for the third quarter was $85 million, or $0.20 per diluted share, compared to $38 million, or $0.09 per diluted share, for the third quarter of 2009. Non-GAAP net income for the third quarter was $165 million, or $0.39 per diluted share, compared to $95 million, or $0.24 per diluted share, for the third quarter of 2009.
Cash, cash equivalents and short-term investments as of September 30, 2010 were $2.9 billion, an increase of 32% compared to a year ago. Total deferred revenues were $1.5 billion, an increase of 52% from the same period a year ago.
For the trailing twelve months ended September 30, 2010, operating cash flows were $1.1 billion, an increase of 8% from the same period a year ago. Trailing twelve month free cash flows were $1.1 billion, an increase of 39% from the same period a year ago.

US revenues for the third quarter increased 47% to $362 million from the third quarter of 2009. International revenues for the third quarter grew 44% to $352 million from the third quarter of 2009.

License revenues were $343 million, an increase of 43% from the third quarter of 2009.

Services revenues, which include software maintenance and professional services, were $371 million, an increase of 49% from the third quarter of 2009.

“VMware’s third quarter results were driven by strong demand across products and regions, led by the U.S. Federal sector,” said Mark Peek, chief financial officer. “For the fourth quarter, we expect total revenues to be within a range of $790 and $810 million, an increase of 30% to 33% from 2009.”

“The quarter’s strong performance reinforces that VMware is on the right path to help customers navigate the changing IT landscape,” said Paul Maritz, president and chief executive officer. “With virtualization as a central technology in cloud computing, VMware will continue to invest to deliver a broadening set of IT as a Service solutions across infrastructure, application platforms and end-user computing.”

Recent Highlights & Strategic Announcements

On August 31, 2010, VMware outlined its vision for the next decade of information technology at VMworld 2010 in San Francisco and later at VMworld Europe in Copenhagen. The new model -- IT as a Service and hybrid cloud computing -- improves each critical layer of modern architecture for infrastructure, applications and end-user access. The events attracted more than 23,000 registered attendees, including customers, partners, press and analysts, and 346 sponsors and exhibitors.
On August 31, 2010, VMware announced a series of solutions to support its new model of IT as a Service, including VMware vCloud ™ Director, a new model for delivering and consuming IT services across hybrid clouds; VMware vShield™, a product family to tackle cloud security challenges; VMware vCloud Datacenter Services, secure, interoperable enterprise-class clouds delivered by leading service providers; and VMware vFabric™, a modern application development platform to deliver speed, portability and optimized use of cloud infrastructure.
During the third quarter, VMware announced that some of the world’s leading service providers, including Bluelock, Colt, SingTel, Terremark and Verizon, will utilize vCloud Datacenter Services to deliver secure interoperable enterprise-class hybrid clouds as a way for enterprises to extend their datacenters to external clouds, while preserving security, compliance and quality of service.
On August 31, 2010, VMware announced that it had acquired Integrien, a leader in real time application and infrastructure performance analytics software, and TriCipher, a leader in secure access management and enterprise identity federation for cloud hosted Software as a Service applications.
On September 13, 2010, VMware announced general availability of VMware View™4.5, a complete, virtual desktop solution that enables enterprises to improve security, lower operating costs, and simplify desktop administration and management by establishing a modern, end-user computing architecture.
In the third quarter, VMware announced a series of alliances to accelerate cloud computing deployment and IT as a Service. VMware’s agreement with HP will deliver a new virtualization solution and reference architectures. VMware and NetApp announced new solutions that will help midsize enterprises consolidate and virtualize their Windows^® environments to deliver enterprise-class IT as a Service.

VMware plans to host a conference call today to review its third quarter results and to discuss its financial outlook. The call is scheduled to begin at 2:00 p.m. PT/ 5:00 p.m. ET and can be accessed via the Web at http://ir.vmware.com. The webcast will be available live, and a replay will be available following completion of the live broadcast for approximately 30 days.

About VMware

VMware delivers virtualization and cloud infrastructure solutions that enable IT organizations to energize businesses of all sizes. With the industry leading virtualization platform – VMware vSphere™ – customers rely on VMware to reduce capital and operating expenses, improve agility, ensure business continuity, strengthen security and go green. With 2009 revenues of $2.9 billion, more than 190,000 customers and 25,000 partners, VMware is the leader in virtualization which consistently ranks as a top priority among CIOs. VMware is headquartered in Silicon Valley with offices throughout the world and can be found online at www.vmware.com

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VMware, VMware vSphere, VMware vCloud, VMware vShield, VMware vFabric and VMware View are registered trademarks or trademarks of VMware, Inc. in the United States and/or other jurisdictions. All other marks and names mentioned herein may be trademarks of their respective companies.

Use of Non-GAAP Financial

Reconciliations of non-GAAP financial measures to VMware’s financial results as determined in accordance with GAAP are included at the end of this press release following the accompanying financial data. For a description of these non-GAAP financial measures, including the reasons management uses each measure, please see the section of the tables entitled “About Non-GAAP Financial Measures.”

Forward-Looking Statements

This press release contains forward-looking statements including, among other things, statements regarding VMware’s fourth quarter revenue projections, our plans to invest in IT as a Service solutions and the delivery of such solutions, our visions for IT as a Service and hybrid cloud computing and their effect on the delivery of IT resources and the utilization by customers of our new products and the solutions offered through our alliances. These forward-looking statements are subject to the safe harbor provisions created by the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those projected in the forward-looking statements as a result of certain risk factors, including but not limited to: (i) adverse changes in general economic or market conditions; (ii) delays or reductions in consumer or information technology spending; (iii) competitive factors, including but not limited to pricing pressures, industry consolidation, entry of new competitors into the virtualization market, and new product and marketing initiatives by our competitors; (iv) factors that affect timing of license revenue recognition such as product announcements and beta programs; (v) our customers’ ability to develop, and to transition to, new products and computing strategies such as cloud computing and IT-as-a-service; (vi) the uncertainty of customer acceptance of emerging technology; (vii) changes in the willingness of customers to enter into longer term licensing and support arrangements; (viii) rapid technological and market changes in virtualization software and platforms for cloud and desktop computing; (ix) changes to product development timelines; (x) VMware’s relationship with EMC Corporation and EMC’s ability to control matters requiring stockholder approval, including the election of VMware’s board members; (xi) our ability to protect our proprietary technology; (xii) our ability to attract and retain highly qualified employees; (xiii) the successful integration of acquired companies and assets into VMware; and (xiv) fluctuating currency exchange rates. These forward looking statements are based on current expectations and are subject to uncertainties and changes in condition, significance, value and effect as well as other risks detailed in documents filed with the Securities and Exchange Commission, including our most recent reports on Form 10-K and Form 10-Q and current reports on Form 8-K that we may file from time to time, which could cause actual results to vary from expectations. VMware assumes no obligation to, and does not currently intend to, update any such forward-looking statements after the date of this release.