VMware's Licensing Business Takes Hit In Q1, But Execs Claim Rivals Aren't Taking Share

VMware's traditionally strong enterprise licensing business hit a snag in the vendor's fiscal first quarter, but its top executives said this is a bump in the road and not a sign that it's losing share to rivals.

VMware's overall licensing revenue actually rose 15 percent year over year during the quarter to $561 million, surpassing its guidance of between $545 million and $555 million.

But after growing 15 percent last quarter, VMware's license and bookings grew less than 10 percent this quarter across all the geographic areas in which it does business.

[Related: Sources: VMware Building 'Project Mystic' Converged Infrastructure Appliance For EMC ]

id
unit-1659132512259
type
Sponsored post

Part of the issue was that some of VMware's enterprise licensing agreements (ELAs) took longer to close than they normally do, COO Carl Eschenbach said on the company's first-quarter earnings call Monday.

ELAs represented 25 percent of VMware's total bookings this quarter, compared with 40 percent last quarter, Eschenbach said.

Another issue is that VMware's product portfolio has seen a major expansion from its acquisitions of Nicira (network virtualization), AirWatch (mobile device management) and Desktone (desktops-as-a-service). It also launched its vCloud Hybrid Service public cloud last May and VSAN storage technology last month.

With all of these new products, VMware made the decision to train its salespeople on how to sell them, and that impacted licensing revenue during the quarter, according to Eschenbach.

"We actually had less selling capacity and time to drive some of our large ELAs to closure" during the quarter, Eschenbach said.

Despite the lower ELA revenue, VMware didn't lose any of these deals to competitors, Eschenbach said on the call. VMware is expecting to see licensing revenue growth accelerate this quarter and already has closed several new ELAs it didn't complete last quarter, he added.

VMware, Palo Alto, Calif., reported net income of $199 million, or 46 cents per share, compared with $173 million, or 40 cents per share, during last year's first quarter. Revenue rose 14 percent to $1.36 billion.

Excluding items, VMware earned 80 cents per share. Wall Street analysts were expecting 79 cents per share and revenue of $1.35 billion.

VMware also is sticking to its earlier guidance for next quarter: It expects revenue to grow between 15 percent and 18 percent to $1.42 billion to $1.46 billion. It also expects licensing revenue of between $605 million and $615 million, which would represent growth of 14 percent to 16 percent.

Despite the first-quarter results, VMware CEO Pat Gelsinger said the vendor is still on track for further growth as more enterprise customers wake up to the benefits of NSX network virtualization and VSAN storage virtualization.

While VMware is playing catch-up in end-user computing, and trying to carve out a niche in the still-nascent hybrid cloud market, its traditional enterprise data center business is still strong, Gelsinger said. "Overall, the competitive landscape has not changed," he said on the call.

PUBLISHED APRIL 23, 2014