UPDATE 1-VMware says to invest $100 mln in India by 2010

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BANGALORE, March 24 (Reuters) - U.S. business software maker VMware Inc VMW.N aims to invest $100 million in India by 2010 and will double its engineering staff in the Asian country to more than 1,000 in two years, its chief executive said on Monday. Diane Greene said the investment would be to expand its research and development operations, underscoring India's importance as a leading global hub for technology outsourcing services for Western firms looking to cut cost.

“In terms of R&D, India is, of course, key to our strategy. We do all aspects of R&D here in India,” she told reporters at the launch of the company’s new development facility in Bangalore. “India is also one of our fastest growing markets and where we have increasingly important system integrator partners.”

VMware sells software that allows a single server to perform the work of 10 or more machines by creating multiple virtual computers that run simultaneously on the machine. The technology helps cut costs for equipment, electricity and labour.

The company, majority owned by EMC Corp EMC.N, dominates the market for server virtualization software.

In India, VMware sees strong business potential as call centres, banks and financial services, telecoms and government departments step up investments on technology to boost efficiency.

The company has more than 300 customers in India, including tractor and utility vehicle maker Mahindra & Mahindra MAHM.BO, refiners Bharat Petroleum Corp BPCL.BO and Hindustan Petroleum Corp HPCL.BO and outsourcing firm Firstsource Solutions FISO.BO

“India is a very high growth market and ... it’s a huge priority for us,” said Greene, a co-founder of Palo Alto, California-based VMware.

India is one of the fastest growing regions for VMware where sales more than doubled last year, she said, without disclosing the India revenue or its share in the global revenue that rose 80 percent in the December quarter to $412 million.

Global technology firms like IBM IBM.N, Accenture ACN.N, and Sun Microsystems JAVA.O are increasingly competing for outsourcing deals in the Indian market, as banks, retail, and small-sized companies boost investments on technology.

The Indian IT services market is expected to reach $10.73 billion by 2011 at a five-year compound annual growth rate of 23.2 percent, according to research and advisory firm Gartner.

In January, VMware forecast revenue to grow 50 percent in 2008, compared with 88 percent last year. That would suggest revenue of $2 billion, shy of Wall Street targets. VMware had been lauded as the best tech offering in recent years after its share shot up 75 percent on its first day of trading last August and rose 193 percent by year end. The stock has fallen 47 percent this year on worse-than-expected forecast. (Editing by Ranjit Gangadharan)