VMware Inc. ( VMW - Snapshot Report ) is scheduled to announce its fiscal second quarter 2012 results after the closing bell on July 23, 2012. In the run up to the earnings release we noticed some analysts revising their estimates upward. We note that VMware has outperformed the Zacks Consensus Estimate in the preceding four quarters by a positive 17.18%. We expect this trend to continue in the current quarter.

Previous Quarter Highlights

VMware reported robust first-quarter 2012 results. Earnings per share of 52 cents soared 62.5% year over year and handily surpassed the Zacks Consensus Estimate by 10 cents. The better-than-expected results were driven by solid revenue growth and solid margin expansions.

Revenues for the reported quarter not only jumped 25.1% year over year to $1.06 billion, but also moved past management’s guided range of $1.015 billion to $1.040 billion and surpassed the Zacks Consensus Estimate of $1.03 billion. The upside was primarily driven by strong Enterprise License Agreement (ELA) growth. Moreover, strong demand in the international markets, particularly from the Asia-Pacific region, contributed to the revenue growth.

For further details please read: VMware Tops Estimates

Estimate Revision Trend

In the last 30 days, four out of the 14 analysts covering the stock revised their estimates upward and only one downward revision was noticed. Thus, the Zacks Consensus Estimate for the second quarter 2012 increased by a penny to 48 cents.

For the second quarter, the revenue estimate as per Zacks Consensus is $1.12 billion, which is in line with the higher end of management’s guided range of $1.10 billion to $1.12 billion. Management’s revenue guidance reflects an increase of 19.5% to 21.5% over the previous-year quarter.

The company recently released the preliminary result for the second quarter, wherein the company reported revenue of $1.12 billion, in line with the Zacks Consensus Estimate. Analysts expect VMware’s results to be driven by the continued demand for server virtualization and cloud computing technologies, as it commands a dominating position in this area.

Moreover, analysts are optimistic about the prospects of the company benefiting from the data center upgradation in the near term. Additionally, the strategic acquisitions made by VMware not only diversify the company’s product portfolio, but also expand VMware’s customer base and market share.

However, on the hindsight, analysts expect the company to face pricing pressures due to similar virtualization solutions being launched by competitors like Microsoft Corp. ( MSFT - Analyst Report ) and Citrix Systems Inc. ( CTXS - Analyst Report ) .

Recommendation

We believe that VMware’s strong and innovative product pipeline along with its strategic acquisitions will enable the company to drive its top-line growth over the long term. Moreover, the company’s continued strong performance in international markets and focus on emerging markets will also be a crucial factor over the long term, in our view.

However, we believe that sluggish North American and European markets coupled with modest IT spending environment and competition from its peers are the headwinds going forward.

We have a Neutral recommendation on VMware over the long term. Currently, VMware has a Zacks #3 Rank, which implies a Hold rating on a short-term basis.