Strong Results From VMW, EMC

Till last quarter, VMware (VMW) was facing trouble. In these times, when most companies are reporting rather depressing results, both VMW and its parent company, EMC’s results were a pleasant surprise.

VMWare’s Revenues for the quarter of $472 million exceeded the market’s expectations of $463 million and reported 32% annual growth and 4% sequential growth. EPS for the quarter stood at $0.24, beating the Street’s expectations of $0.20 and growing by a cent over the previous year and the previous quarter.

US revenue increased 24% over the year to $249 million and International revenue grew 42% to $224 million. The company saw significant opportunities in Japan, Korea, and Germany and are looking at geographical expansion in the future in Asian markets.

In response to the economic conditions, they noted that their customers were cautious of their capital budgets and in some cases were opting for immediate needs and letting go of larger discounts offered by enterprise license agreements.

To manage the recession, they are looking at controlling revenue expenses, managing product delivery, and creating strategic frameworks to guide their efforts. Microsoft’s entry into the Hypervisor market, did not result in any major losses to VMWare, and they are confident that Microsoft will take another year or so to catch up with their current product range.

The company is working on evolving their virtual infrastructure product line into a fully virtual data center operating system. They also announced a joint project with Teraichi for the development of a new protocol to provide efficient traffic between the server environment and its end client environment.

The stock had slipped to an all-time low of $18.30 late last week, but has recovered substantially since to trade at $28.22. VMW was once deemed as the next Google.

Like VMW, the parent EMC also had a solid quarter. Revenue for the quarter grew by 13% over the year to $3.7 billion and EPS recorded growth of 14% to reach $0.19. While revenues were in line with the market’s expectations, the earnings exceeded the Street’s expectations by a cent.

By segment, Information Infrastructure revenues grew by 10% to $3.2 billion. Content management and archiving business revenues were flat while RSA revenues grew by 11% over the year.

They too experienced strong demand in the non-US markets of the Middle East, Eastern Europe, and Latin America. However, China was slower due to the Olympics and the earthquake in the region.

Like others, they are looking at adopting a leaner cost structure through back office and infrastructure expense management and controlling areas of their businesses which have low productivity or high costs.

During the quarter, they spent $433 million to repurchase 31 million shares.

EMC expects revenues of $4 billion in the next quarter with EPS of $0.23-$0.24.

They are hopeful that in the challenging conditions, customers will continue to spend on risk and compliance, for which their diversified product range offers solutions.

The stock had slipped to a new 2-year low of $8.35 last week, but has recovered since and is trading at $10.51. It is still quite a bargain, especially if the market stabilizes.