Virtualisation specialist VMware announced sluggish growth for the second quarter of 2008 and anticipated slow expansion for the near future as businesses hold back from signing large deals.

Service revenue was up 85 per cent, totalling $172m (£86.2m), while software licence revenue rose by 39 per cent to $284m (£142.4m) from the same period last year. Total revenue for the period failed to meet market expectations and reached $456m (£228.7m), up 54 per cent from the second quarter of 2007.

As Microsoft launches its own HyperV virtualisation product, increased market pressure will force VMware to start giving away its core product – ESXi hypervisor – available for downloading from 28 July.

Earlier this year VMware announced plans to freely embed ESXi into X86 server hardware from Dell, HP and others.

“I know that Microsoft can afford to play a long waiting game," said Paul Maritz, chief executive at VMware. “However, in markets where another company already has a sizable lead - as VMware does in virtualisation - it can be " really hard to catch [up] even for Microsoft," he said.

Market sources believe the move is intended as a channel to sell more profitable products and help the company fend off competition, although VMware says that the decision is part of the company’s “overall transition in the market to providing the management tools that organisations use to control and manage their virtual infrastructures, rather than being just a hypervisor provider”.