SAN FRANCISCO | Newly public VMware Inc. announced third-quarter profits that blew past Wall Street expectations as a growing number of companies adopted its "virtualization" software.
In its first quarter as a public company, Palo Alto-based VMware posted a profit of $64.7 million or 18 cents per share, up from $19.2 million, or 6 cents per share, in the year-ago quarter.
Revenue rose 90 percent to $357.8 million from $188.8 million.
Adjusted earnings, which exclude stock options expenses and the amortization of intangible assets and the write-off of in-process research and development, were $85 million, or 23 cents per share.
On that basis, which does not comply with generally accepted accounting principles, analysts polled by Thomson Financial expected a profit of 17 cents per share on revenue of $334.4 million.
Shares of VMware had closed Wednesday at $103.52, down $2.63 or 2.5 percent. After the report was released, they gained $5.07 in extended trading.
"VMware had a strong quarter by several measures," said company President and Chief Executive Diane Greene. "Companies large and small are moving to a VMware Infrastructure architecture for their data centers and, in many cases, for their desktops."
VMware's virtualization process enables a single computer to function like multiple machines, requiring companies to spend less money on computer hardware. It also reduces energy costs in electricity-hungry data centers.
Data storage company EMC Corp. owns an 86 percent stake in VMware. In August, EMC spun off a 10 percent stake of the VMware division -- the biggest technology stock offering since Google Inc. debuted three years earlier.
According to Renaissance Capital's IPOhome.com, the one-day gain in VMware's stock after its IPO was the largest this year. VMware shares surged 76 percent the first day of trading, leaving the startup with a market value of $19 billion.
By comparison, Google saw an 18 percent increase its first day of trading, to produce a market value of $27 billion.
VMware dominates the virtualization niche with 20,000 customers, $1.13 billion in cash, and 4,500 employees at the end of the third quarter -- up from 3,000 workers in the first quarter.
VMware spent $67.8 million on research and development last quarter, or 19 percent of revenue. By contrast, Oracle spent $652 million on R&D last quarter, about 14 percent of revenue; Google spent $548.7 million, about 13 percent of revenue.
VMware's competitors include startups such as Lowell, Mass.-based Virtual Iron Software Inc. and Xen Source Inc., which Fort Lauderdale, Fla.-based Citrix Systems Inc. acquired earlier this week for about $500 million. Another threat comes from Redmond, Wash.-based Microsoft Corp., which plans to introduce a rival product code-named "Viridian" next year.
But Wall Street remains bullish about VMware, and many investors lavished praise on executives Wednesday during their first earnings conference call.
"This is a company firing on all cylinders, and I don't see competition hitting them anytime soon," technology analyst Shelby Seyrafi of New York-based equity research firm Caris & Co. told The Associated Press after the VMware call. "Microsoft is starting from a standing start. We'll watch the competition there, but I still think that VMware will have hyperbolic growth rates for the next several years."
