VMware Fires On All Cylinders: NSX, vSAN, Compute Add To Growth While AWS, VeloCloud Opportunities Take Shape
Joseph F. Kovar
VMware's business is growing thanks to innovation in its cloud and software-defined product strategies, but the company is only getting started, CEO Pat Gelsinger told investors on Thursday.
The company in its third fiscal quarter 2018 saw growth across the board in its NSX software-defined networking and vSAN software-defined storage businesses, and even in its flagship vSphere compute business as clients look to merge on-premises and cloud environments, Gelsinger told investors on the VMware earnings conference call.
The expansion will continue as businesses adopt new technologies, including the company's VMware Cloud on AWS strategic relationship with Amazon Web Services and capitalizes on its planned acquisition of VeloCloud Networks, he said.
"Our strategy to transition from a compute virtualization company to providing a broad portfolio of products and services across cloud, mobile, networking, and security, is proving successful as we continue to drive forward with our plans," Gelsinger said.
The CEO said VMware had moved quickly to expand its VMware Cloud on AWS with new hybrid cloud capabilities, disaster recovery services, and an expansion to its second AWS availability zone, all of which will make it more suitable for enterprise production environments.
"We expect production use cases to ramp quickly as we move forward," he said.
Gelsinger said that revenue stemming from its new AWS relationship would not be material for fiscal 2018 or fiscal 2019. However, he said, the cloud, in general, will help drive the company's revenue going forward.
That relationship will also drive VMware's on-premises revenue as well, Gelsinger said. He said it is rare today to find an enterprise customer without at least some AWS experimentation. At the same time, VMware is used by nearly 100 percent of enterprises.
As a result, VMware Cloud on AWS would allow customers flexibility in investing n both on-premises and cloud environments, he said.
Even as cloud opportunities are on the horizon, newer technologies like IoT and edge computing are likely to bring many compute applications back from the cloud to on-premises infrastructures where they can be handled more quickly than moving the data to the cloud for processing, Gelsinger said.
"We think all these mean for a vibrant hybrid environment, on-premises and cloud, and VMware will be in the middle … I believe this will definitely be the model of IT into the next decade or two, if not ad infinitum," Gelsinger said.
VMware saw strong third-quarter 2018 growth in sales of many of its key technologies. This includes a 100-plus-percent year-over-year increase in license bookings for its NSX software-defined networking business. It has been adopted by over 3,100 customers already, and will over time be used by hundreds of thousands of customers, Gelsinger said.
The growth of the NSX business will help drive other parts of VMware's business, including its Kubernetes-based PKS Pivotal Container Services, VMware Cloud on AWS, and VeloCloud, Gelsinger said. "The use cases are broadening as customers get comfortable with the technology," he said.
License bookings VMware's vSAN software-defined networking business grew 150-plus percent over last year, helping to make VMware the IT industry's largest converged infrastructure and hyper-converged infrastructure software provider according to IDC, Gelsinger said.
Total compute bookings grew about 11 percent over last year. Gelsinger said many in the industry were thinking three years ago that applications would go to the cloud, but then realized that they would have to re-platform their applications for the cloud. Instead, customers are now building new applications for the cloud while investing in on-premises compute for older applications.
"Overall, we expect this is going to be a fairly balanced conversation. … This is going to last multiple years into the future. And, as I mentioned earlier, things like IoT will continue to grow on-premises environments," he said.
VMware's planned acquisition of SD-WAN developer VeloCloud is also expected to drive business going forward by building on NSX to provide automation and security to not only the data center but to branch and remote offices, Gelsinger said. "This acquisition will also help VMware lead the transition to a software-defined world," he said.
VMware's third fiscal quarter 2018, which ended November 3, brought in revenue of $1.98 billion, up 11 percent from its third fiscal quarter of 2016. That included a 14-percent year-over-year increase in license revenue to $785 million.
Net income on a GAAP basis was reported at $433 million, or $1.07 per share, up from last year's $319 million or 75 cents per share. On a non-GAAP basis, income was $553 million, or $1.34 per share, up from last year's $485 million or $1.14 per share.
Looking forward, VMware expects fiscal full-year 2018 revenue to be $7.875 billion, up about 11 percent compared to the $7.1 billion reported for all of the fiscal year 2016. License revenue is expected to reach $3.155 billion, up about 13 percent, while non-GAAP earnings per share is expected to be $5.13 compared to last year's $4.39. VMware had a much-shortened fiscal year 2017 to adjust its fiscal reporting periods.