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.
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: