VMware reports a sharp drop in profit

Revenue rose but the company spent more on R&D

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VMware's third-quarter profit dropped by more than half as the company invested more heavily in research and development, though its revenue increased 4 percent from a year earlier, the company said Wednesday.

Net income for the quarter ended Sept. 30 was $US38 million, or $US0.09 per share, down from $US83 million, or $US0.21 per share, in the third quarter of 2008, VMware said. Including one-time items, the company made a profit of $US95 million, or $US0.24 per share, better than the $US0.20 per share analysts had been expecting, according to Thomson Reuters.

Revenue for the quarter was $US490 million, up from $US472 million for the same period last year. Analysts had been expecting $US474 million in revenue, Thomson Reuters said.

The economy remains challenging but VMware now has better visibility into the coming quarters, Chief Financial Officer Mark Peek said in a statement. He forecast fourth-quarter revenue of $US540 million to $US560 million, ahead of current estimates, but said revenue in the first quarter next year is likely to be down sequentially.

VMware spent $US133.5 million on R&D during the quarter, up from $US85 million in the same period last year. Sales and marketing expenses also climbed, as the company continued to promote a new version of its virtualization software, vSphere 4.

"Our solid third-quarter results were driven by strength in the U.S. federal sector, increased transaction volumes and particularly robust growth in our maintenance renewals," Peek said in the statement.

A 1 percent drop in revenue from the U.S. was more than offset by a 9 percent increase in international sales, VMware said. Services revenue, which includes maintenance fees and professional services, climbed 33 percent to $US249 million, while revenue from new software licenses declined 16 percent to $US240 million.