(FORTUNE Magazine) – Diane Greene, CEO of a 360-person Palo Alto startup called VMware, is extolling the virtues of virtualization software--programs that enable servers to act as one superserver--when she excuses herself and leaves the room to speak with a colleague. "It's the end of our quarter," she explains when she returns after a minute or so. "An extreme blowout quarter," she adds, without a whiff of braggadocio--the quick conference was about another sale closing unexpectedly that morning. "It's just nice to have momentum," says Greene.

VMware's software is unglamorous and difficult to understand, and won't ever be used by consumers. But CIOs don't care about that. VMware's products are good enough that the company could start operations nearly at the height of the bubble and thrive despite its bursting. Sales have been booming at a quarterly growth rate of 20%-plus--it won't reveal dollar amounts--and the company says it has been profitable for the past four quarters.

Ever since server computers replaced mainframes as the workhorse of corporate IT shops, CIOs have bought servers that typically run on just one operating system and have just one primary function. VMware makes each server a virtual machine (hence the name), allowing it to be run more efficiently and eliminating the need to buy more to handle additional tasks. If a server maxes out, the load can shift to a server in, say, India, that has capacity to spare. That ability has made VMware popular with data-intensive companies like Merrill Lynch and Guardian Life.

It's also earned VMware one major competitor: Microsoft. Greene says Microsoft tried to buy VMware last year; when she rebuffed the offer, the software giant bought a startup called Connectix instead. Microsoft's problem, says Greene, is that it's only interested in virtual machines that run Windows programs; VMware connects servers running Windows, Linux, and various flavors of Unix.

Greene says VMware is running hard toward an IPO next year so "we can grow more aggressively." More extreme blowout quarters certainly should help. --Adam Lashinsky

WHY CIOS WANT TO GO VIRTUAL

--Freedom. VMware software lets CIOs make the most of each server, including running applications from competing vendors.

--Speedier rollouts. Because VMware software can shift applications from machine to machine, CIOs can deploy programs companywide in hours, not months. Says Greene: "It means you won't have to schedule downtime."