VMware CEO Details Hybrid Cloud Strategy, Delivers Q3 Growth

VMware's cloud strategy is materializing through new partnerships, a broad portfolio refresh and the company's new hybrid cloud architecture, CEO Pat Gelsinger told investors Wednesday on the company's third-quarter earnings call.

While VMware expects to extend its leadership position in private cloud by expanding a diversified portfolio of services to public clouds operated by IBM and Amazon Web Services (AWS), those deals have yet to yield revenue.

The Palo Alto, California-based company's $1.8 billion in sales during the third quarter, a 6 percent year-over-year improvement, was driven by its largest customers doubling-down on the core technologies and extending their vSphere deployments, Gelsinger told investors.

[Related: Partners On VMware Cloud For AWS: The Devil Will Be In The Details]

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VMware's non-GAAP earnings of $1.14 a share beat analysts' expectations of $1.10, sending the stock up more than 2 percent, to $75.15, in after-hours trading.

VMware has been aggressively pursuing a hybrid cloud strategy enabled by the VMware Cross-Cloud Architecture, unveiled at the last VMworld conference.

At the core of that strategy is VMware Cloud Foundation, Gelsinger said, a set of services enabling customers to extend private cloud infrastructure into the public realm using "a proven and familiar set of software and tools."

Channel partners in the vCloud Air Network are expressing strong interest in including Cloud Foundation as part of their service offerings, he said.

Driving the hybrid strategy are the partnerships with IBM and Amazon Web Services.

The strategic alliance with AWS, to be primarily delivered, sold and supported by VMware, although also available through the AWS Marketplace, "represents the best of both the private and public clouds," Gelsinger said.

The company expects VMware Cloud For AWS will initially be sold to the company's largest enterprise customers as a seamless hybrid cloud solution, the CEO told investors.

The premium product will take on a broader range of customers as it matures and both companies build out its channel. VMware Cloud For AWS, hitting the market in the middle of next year, will be available both through VMware's and Amazon's channel partners as it ramps sales through 2017 and 2018, Gelsinger said.

"We'll engage with mutual partners, including some of the largest systems integrator partners," he said.

Gelsinger noted the companies have yet to provide specific details of their new business relationship.

The AWS deal is the "fastest way for many customers to get on the full software-defined data center," he said, by taking advantage of AWS' elastic bare-metal service to scale VMware's solution rapidly across Amazon's massive data center footprint.

Revenue expectations are moderate for next year, CFO Zane Rowe told investors, "but we're very excited beyond next year."

The partnership with AWS was driven by the challenges many enterprises have encountered trying to re-platform applications for the public cloud, Gelsinger said. A cloud experience with the advantage of native services from AWS offers a compelling value proposition.

AWS hears the same thing from its customers, he added.

VMware is not only concerned about addressing public cloud disruption, but also the challenge posed to its core business by the advent of application container technology.

To that end, a broad refresh of its portfolio—vSphere, VSAN, vRealize Automation—introduced support for containerized workloads, Gelsinger said, and last week, the virtualization leader released Photon Platform, a cloud-building solution that supports Docker containers and delivers the Kubernetes container orchestration engine.

Gelsinger also announced organizational and leadership changes "designed to better align VMware with our future as a cloud services company."

The company will form a new Products and Cloud Services division. And channel leader Sanjay Poonen's role has been broadened to include the position of chief operating officer responsible for global sales and channels.

With the Dell acquisition of VMware parent EMC now closed, the company is just starting to look toward its goal of $1 billion in annual sales through Dell's distribution channel, Gelsinger said.

That new channel will accelerate over the next several years, starting to take effect in 2017, he said.