VMware (NYSE:VMW), the leading desktop virtualization company, announced its Q3 earnings on October 23. It reported a 22% y-o-y constant currency revenue growth at $1.13 billion. Operating income was $190 million, an increase of 5% y-o-y, while net income was $157 million, or $0.36 per diluted share, compared to $178 million last year. Trailing twelve months operating cash flows were $1.97 billion, an increase of 5% y-o-y. Trailing twelve months free cash flows were $1.90 billion, an increase of 4% y-o-y. The company also announced that industry veteran Jonathan Chadwick will join VMware as chief financial officer (CFO) effective November 5, 2012. 
We expect mobile desktop virtualization, the bring-your-own-device (BYOD) movement, Big Data analytics and enterprise social networking will be the main revenue drivers for Q4 and the subsequent quarters.
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Guidance For Q4 2012
The biggest indicator that virtualization is becoming an integral part of IT operations is the fact that U.S. revenues for Q3 grew 25% y-o-y to $554 million while international revenues grew 16% y-o-y to $580 million despite weak macroeconomic conditions. License revenues in Q3 were $491 million, an 11% y-o-y increase and service revenues, which include software maintenance and professional services, were $643 million a 29% y-o-y increase.
The company has guided for Q4 revenues in the range of $1.26 to $1.29 billion. Annual 2012 revenues are expected to be in the range of $4.57 and $4.60 billion, an increase of 21.4% to 22.2% y-o-y. Annual license revenues are expected to grow between 12.8% and 13.8% y-o-y.
We currently have a $109 Trefis price estimate for VMware, which is nearly 30% above the current market price.Notes: