VMware Shows Up the Skeptics

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The virtualization gravy train rolls on.

Virtual machines master VMware (NYS: VMW) just reported a fine fourth quarter. With $0.62 of non-GAAP earnings per share on sales of $1.06 billion, the company left your average analyst eating a little bit of dirt. Shares jumped as much as 5% in after-hours trading.

That's 27% year-over-year sales growth and 64% higher earnings. Free cash flow also jumped 32% to land at $561 million, or more than double the $266 million in adjusted net income.

That strong sales growth was led by service revenue as existing VMware customers signed up for more support services. It's a very smooth cash machine, adding $400 million to already bulging coffers during the quarter.

VMware falls into that rare class of software makers that actually thrive when IT budgets get tighter. You show me a data center manager who got in trouble for making more efficient use of his hardware resources while also reducing his staffing needs, and I'd be happy to sell you this nice bridge in the Big Apple. It just doesn't happen.

Operating efficiencies are the key to VMware's success, just as they power the rocket engines behind Linux vendor Red Hat (NYS: RHT) and middleware specialist TIBCO Software (NAS: TIBX) . You can build more servers for less money when the software license is free, and your organization runs smoother when you're not waiting for database queries half the time. The longer the economy stays opaque, the further these efficiency experts will ride this unique opportunity.

Virtualization is a key component of cloud computing, which is the software trend most likely to keep Bill Gates awake tonight. This free video report explains why cloud technologies are such a market-shifting force right now, and how VMware fits into the puzzle. The video is totally free but might not be available tomorrow, so just watch it now. You can thank me later.

At the time this article was published Fool contributor Anders Bylund holds no position in any of the companies mentioned. Motley Fool newsletter services have recommended buying shares of TIBCO Software and VMware. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Check out Anders' holdings and bio, or follow him on Twitter and Google+. We have a disclosure policy.

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