VMware Increases Guidance Following Strong Growth In NSX, VSAN And End User Computing

Strong growth in software-defined storage, software-defined networking technologies and end user computing helped define a strong fiscal first quarter for VMware. The company also expects its VMware Cloud on AWS service to have a successful rollout.

The shift towards these latest offerings also helped VMware increase its guidance for all of fiscal 2018.

VMware CEO Pat Gelsinger, in response to analyst questions on the company's earnings conference call, said the overall market interest in its upcoming VMware Cloud on AWS service is strong.

[Related: VMware CEO: Strong NSX, vSAN, VxRail Growth Drives 2016, AWS Relationship Is Next]

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"[We were] significantly oversubscribed for the beta slots," Gelsinger said.

VMware Cloud on AWS service availability is on-track for mid-2017, Gelsinger said. "Certainly, by VMworld [in August] we'll have a lot more to say about availability," he said.

VMware will not announce VMware Cloud on AWS pricing until availability, Gelsinger said. However, he said, pricing discussions have started with beta customers. "We feel confident we're landing well within the marketplace … [It] allows customers to move seamlessly into the cloud experience," he said.

Amazon is providing a new hardware footprint on which to run the VMware stack, with VMware managing the entire VMware experience, Gelsinger said. That experience will continue to be dynamic and scalable, he said. "That's part of what's so compelling to customers: They're not giving anything up," he said.

More information on VMware Cloud on AWS will be available as it is rolled out, he said.

VMware's vSAN software-defined storage technology is growing, with license bookings up by over 150 percent year-over-year, said Zane Rowe, VMware's CFO. The company already has over 8,000 vSAN bookings, he said.

Strength in vSAN was significantly enhanced with the April introduction of vSAN 6.6, the first to include native hyper-converged infrastructure security, Rowe said.

"We believe that we have the broadest offering in the hyper-converged market, and that vSAN outgrew the competition," he said.

VMware's NSX software-defined networking technology is also showing strength. Rowe said NSX license bookings grow by over 50 percent year-over-year, and the company already has 2,600 NSX customers.

Gelsinger said that nine of every ten top VMware deals included NSX, with security a key driver of NSX adoption, Gelsinger said. "It continues to be an integral piece of all of our offerings," he said.

VMware's end-user computing business also did very well with a 20-percent year-over-year growth in license bookings, Rowe said. It was lead by a healthy growth in both mobile and desktop software sales, he said.

VMware recently adjusted its fiscal calendar on January 2017 because of Dell's acquisition of VMware parent company EMC with an abbreviated fiscal 2017. Because of that, the company's fiscal first quarter 2018 results are compared to its fiscal first quarter 2016. That "stub period" of fiscal 2017 year ran from January 1 to February 3.

VMware reported revenue for the first fiscal quarter of 2018, which ended May 5, of $1.74 billion, up about 6 percent from the $1.69 billion reported during the comparable quarter in fiscal 2016. That included licensing revenue of $610 million, up 6.6 percent; software maintenance revenue of $974 million, up 9.3 percent; and professional services revenue of $152 million, up 20.6 percent.

About half of VMware's revenue comes from the U.S.

The company reported GAAP net income of $232 million, or $0.56 a share, up from income of $161 million, or $0.38 a share, reported during the first fiscal quarter of 2016. On a non-GAAP basis, net income for the quarter was $412 million, or $0.99 a share, up from the first fiscal quarter of 2016's $366 million, or $0.86 a share.

VMware increased its guidance for the second quarter and for the full fiscal year 2018.

Second fiscal quarter 2018 revenue is expected to be between $1.84 billion and $1.89 billion, compared to the second fiscal quarter of 2016's reported revenue of $1.69 billion. The license revenue for the next quarter is expected to be between $695 million and $725 million. Earnings per share, non-GAAP, are expected to hit between $1.11 and $1.14, up from $0.97 reported in the comparable period during fiscal 2016.

For the full fiscal 2018 year, revenue is expected to react about $7.61 billion, up from the $6.57 billion reported for all of the fiscal year 2016. That includes licensing revenue of $2.98 billion, up from fiscal 2016's $2.72 billion. The company also expects full-year (non-GAAP) earnings of $4.91 per share, up from fiscal 2016's $4.06 per share.