Virtualisation vendor VMware has announced a seven per cent year-on-year increase in first quarter revenues, but admitted to tough times ahead.

Despite posting a turnover of $470.3m (£321.8m), an increase of seven per cent from the first quarter of 2008, VMware said sales are being hit by the economic downturn and warned that it might reveal its first ever drop in turnover this quarter.

Paul Maritz, president and chief executive of VMware, said: “We delivered solid results for the first quarter despite a very challenging economic climate. Customers continued to adopt the VMware platform as a strategic investment that delivers substantial cost savings and improved efficiency and flexibility for their business.

“Also during this quarter, we and our extensive ecosystem of partners will begin the transition to VMware vSphere4. As a result, we expect our second quarter revenues will be flat, or even down, compared with the second quarter of 2008.”

GAAP net profit for the first quarter, which ended 31 March, was up at $69.9m compared with $43.1m for the first quarter of 2008.

VMware explained that software licence sales declined by 13 per cent compared with last year’s first quarter, to $257m.

The drop was offset by a 48 per cent leap in service turnover which includes software maintenance fees and is becoming a larger part of VMware's business.

Mark Peek, chief financial officer at VMware, said: “Our operational execution has resulted in strong cash flow, and enables us to continue to make the strategic investments needed to grow our business.

“However, due to the tough economic conditions, we expect customers will continue to keep a very tight rein on their IT spending, particularly new investments."