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A Look at VMware’s Financial Performance in Fiscal 2Q18

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VMware’s segment performance

Earlier in the series, we discussed VMware’s (VMW) recently launched offerings as well as the company’s performance in fiscal 2Q18. VMware’s product offerings such as NSX, vSphere, AirWatch, and vSAN continued to see robust demand in fiscal 2Q18.

Services revenues, which contributed ~61.5% to VMW’s overall revenues, rose 11.3% to ~$1.2 billion in fiscal 2Q18. Licensing revenues, which made up the remaining ~38.5% of VMware’s overall revenues rose 13.7% to $610 million. VMware’s licensing revenue growth led many analysts to have a positive outlook regarding VMware’s prospects, as we will see later in this series.
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VMware’s margins

As the chart above shows, VMware’s operating margins expanded due to cost control in fiscal 2Q18. During the quarter, the company’s R&D (research and development) allocation as a percentage of revenues was 22.5%, compared to 21.4% in fiscal 2Q17.

Its SG&A (sales, marketing, general, and administrative) expenses as a percentage of revenues totaled 45% compared to 44% in fiscal 2Q17. Despite this increase, its operating margin was 30.8% in fiscal 2Q18, comparable to its operating margins of more than 30% in the previous three quarters.

VMW’s strong top line and efficient cost controls aided it in expanding its net margins. VMware’s net income rose 26% to $334 million in fiscal 2Q18, compared to $265 million in its last comparable fiscal quarter.

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