VMware (NYSE:VMW) delivered strong y-o-y growth but flat q-o-q growth as we had guided in our pre-earnings note. Revenues grew 25% to $1.06 billion on a yearly basis but was down by about half a percent on a quarterly basis.  Q1 has traditionally been a slow quarter for VMware, and the company management has raised its outlook for 2012 expecting virtualization and cloud computing to drive growth. VMware competes with Microsoft (NASDAQ:MSFT), Oracle (NASDAQ:ORCL) and Citrix (NASDAQ:CTXS) in the virtualization space.
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The numbers were very strong on a y-o-y basis as revenues grew to $1.05 billion and net income to $191 million, representing yearly growth of 25% and 52%, respectively. On a quarterly basis, however, revenues and net income dropped by 0.5% and 5%, respectively. Q1 has traditionally been a slow quarter for the company, and VMware has raised its earnings outlook of 2012. However, if Europe continued to serve as a drags on IT spending as expected, we may see lower revenues in 2012. Growth markets like BRIC nations may provide a way around a sluggish Europe.
Higher Outlook for 2012
The company has guided Q2 revenues in the range of $1.1-$1.12 billion and 2012 revenues between $4.52 and $4.62 billion, which represents an increase of about 20% from 2011. It hopes that the demand for virtualization and cloud computing will drive revenue.  We expect VMware to face pricing pressures as more companies push into the virtualization space. We estimate a market share of around 44% for VMware, and expect this to decline to 40% by the end of our forecast period.
We have a $98 Trefis price estimate for VMware, which is 14% below the current market price.Notes: