(Editor’s Note: Below is Technology Business Review’s commentary on VMware’s first quarter 2012 performance.)

By Elizabeth Hedstrom Henlin, TBR Analyst

TBR maintains that VMware’s current momentum stems from the robust, cloud-oriented functionality the company built into its core portfolio throughout 2011. As customers focus on scalable deployments, with investments remaining constrained, VMware’s clear evolution of its core capabilities to cloud delivery models situates the company at a leading-edge of adoption, encompassing net-new customers as well as share-of-wallet increases from its install base.

As VMware moves into 2Q12, TBR believes that the strength of its global growth opportunities remains tightly tied to the company’s ability to stay one step ahead of its install base’s evolving needs. With its role in supporting the cloud defined, VMware is transitioning its messaging to embrace automation and integration of diverse IT environments. VMware’s challenge for 2012 is matching its increasingly diverse portfolio as effectively to this new, enablement theme as it did to the foundational cloud-centric messaging that drove success in 2011. Innovative launches such as the recent VMware Accelerate Advisory Services are a well-timed step in that direction.

With maturing cloud deployments, TBR sees rising customer expectations for cloud performance and scalability. IT managers are challenged to maximize efficiency and minimize complexity, while searching for a unified way to manage both cloud and traditional architectures. As customers seek ease of cloud management, VMware’s vCloud datacenter provider network will face ongoing challenges from mainstay competitors Microsoft and Citrix as well as from the accelerating traction for open-source platforms including CloudStack (also from Citrix) and OpenStack. Commercial vendors will continue to remain hypervisor agnostic (including IBM, CA, BMC, Oracle, and others), layering their own solutions atop of these competing platforms.

International markets fueled VMware’s strong 1Q12 revenue performance

VMware’s 25% year-to-year overall revenue growth to $1.06 billion was fueled in large part by international revenue improvements of 28%. VMware executives noted particularly strong performance from Japan, China, and the United Kingdom. TBR maintains that VMware has a significant opportunity in international markets, particularly in APAC, as the company has only recently begun investment in substantial overseas infrastructure and headcount. Strong ecosystem relationships with local partners such as SingTel as well as multinational vendors including AT&T place VMware in a positive position with respect to driving international growth throughout 2012.

With 35% year-to-year growth in maintenance revenues alongside a strong cash flow position (operating cash flows of $2.12 billion – 64% year-to-year growth – and free cash flows of $2.07 billion – 53% year-to-year growth), VMware has the top-line profitability necessary to minimize much of its risk while it maintains headcount, facility, and go-to-market expansion plans. TBR projects VMware’s profitability will improve incrementally throughout 2012 as customers purchase an average of 24 months of maintenance with new licenses. VMware’s revenue performance supports additional investment throughout the year to see its automation-focused vision into reality.

Diverse partnerships are powering VMware’s global cloud infrastructure expansion

VMware’s executive focus remains on finding the company’s next act. With 85% of 2011 revenue stemming from solutions providers and less than 3% from direct implementation of services, per Carl Eschenbach, VMware’s ecosystem is well-situated to broaden global awareness of VMware’s robust, enterprise-ready cloud portfolio. 1Q12 saw expanded relationships with partners including Symantec and Catbird to broaden the portfolio of partner-driven, security-focused features optimized to work both with VMware’s vShield and the Cloud Infrastructure Suite.

TBR sees VMware’s expanding array of portfolio-focused and go-to-market alliances as timely. Following a partner program evolution trend embraced by Oracle and Microsoft among others, VMware’s adjusted certifications add new segmentations and financial incentives to accelerate partner implementation of VMware cloud solutions. VMware has the opportunity to further solidify loyalty with service providers by driving visible market proof points in support of Carl Eschenbach’s emphasis at Partner Exchange that experiential learning from VMware’s enterprise-centered services opportunity will be repurposed to the benefit of its ecosystem.