VMware's Multi-Cloud Strategy Delivers Another Strong Quarter


VMware's strategy of developing hybrid cloud technologies and enabling multi-cloud deployments yielded a strong close to fiscal year 2019 for the virtualization leader, VMware CEO Pat Gelsinger told investors Thursday during his Q4 earnings call.

The hybrid and multi-cloud approach combines the core VMware technology stack with services delivered through partnerships with Amazon Web Services and other cloud providers, and an emerging development environment centered on the open source Kubernetes container orchestrator.

In a strong fourth quarter that ended Feb. 1, VMware revenue rose 16 percent to $2.59 billion, with license sales of $1.23 billion up 21 percent compared to the same quarter the previous year. Annual revenue amounted to $8.97 billion—a 14 percent year-over-year expansion.

[Related: VMware CEO Gelsinger: 3Q Growth Highlights Impact Of Hybrid Cloud Investments, AWS Partnership]

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Earnings-per-share of $1.98 beat Wall Street's forecasts by ten cents, driving the company's stock up from $171.81 to $177 in trading after the market closed Thursday.

Gelsinger credited those better-than-expected results to an expanding portfolio that spans across and enables hybrid and multi-cloud environments.

Customers are increasingly buying comprehensive data center solutions, not specific technologies, that build off four core ingredients: compute, network, storage and management. As that happens, "deals become larger and more strategic," Gelsinger said.

The IT market looks strong well into the future as the industry sees "tech breaking out of tech," Gelsinger said.

That means more areas of their customers' businesses are consuming technology to differentiate their capabilities, and IT departments are no longer exclusively making buying decisions.

VMware has positioned itself well across growth sectors, Gelsinger said, through the breadth of its portfolio.

The alliance with AWS is an important component of that strategy—and is yielding ever-larger deals, including one in Q4 that was the first VMware Cloud on AWS sale to surpass $20 million, he said.

That "strong, preferred and unique partnership" delivers a highly differentiated VMware cloud offering, he said. Their joint work will continue, including through an extension into Amazon's looming on-premises data center solution, Amazon Outposts.

Synergies with parent Dell Technologies are also leading to bigger, more-integrated deals. The companies achieved a $1 billion synergy goal well in advance of the expected 3-year time frame, proving the market momentum they generate as a unified force, Gelsinger said.

VxRail, a hyper-converged offering, and the Workspace ONE endpoint management platform are key components of the joint efforts.

"They're becoming this powerful partner across our geos, across market segments," Gelsinger said of the relationship with Dell, which recently became a publicly traded company once again.

Recent VMware acquisitions are playing critical roles in expanding VMware's capabilities and footprint.

On the management front that's critical to supporting a multi-cloud posture, last year's CloudHealth acquisition is at the forefront of that vision.

VeloCloud, delivering SD-WAN capabilities, is proving integral to VMware's networking capabilities.

And the recent deal for AetherPal will enhance Workspace ONE by simplifying the ability to manage workforce devices.

VMware also recently closed its acquisition of Heptio, which will immediately enhance its capabilities around Kubernetes, increasingly a focal point for the company, Gelsinger said.

VMware looks to become a major player in the Kubernetes market with a "three-layer cake" approach as it promotes further standardization of that technology, he said.

The Kubernetes thrust involves Heptio; PKS, which adds VMware's NSX network virtualization to Pivotal's Kubernetes management platform; and, for customers that want a "more-opiniated development environment", Pivotal's Cloud Foundry Platform-as-a-Service.

"All three we will bring into a common technology stack where they can grow up into a complete solution," Gelsinger said.

Further supporting cloud-native development projects, VMware will be building out solutions around the open source Istio service mesh project, he said.

This story has been updated to correctly state annual revenue.