Five Key Takeaways From VMware's Q2 Earnings

VMware on Tuesday reported fiscal second quarter results, and it was no ordinary earnings call for the Palo Alto, Calif.-based company, which last week took the wraps off the largest product update in its 13-year history. There was plenty for analysts to chew on, including the vast performance and scalability improvements coming in vSphere 5, and the automation features built into other parts of its cloud infrastructure stack.

However, VMware's new vSphere licensing model attracted the lion's share of their attention. Which is hardly surprising considering the implications it could have for what virtualization and cloud infrastructure licensing will cost going forward.

Following are some of the intriguing comments that VMware CEO Paul Maritz and CFO Mark Peek made during the call, according to a transcript of the call from Seeking Alpha .

1. "With our recent announcements of vSphere 5 and cloud infrastructure suite, there's also the potential for short-term disruption in the sales process and close rates, as our extensive set of ecosystem partners begin to go to market transition."

-- VMware CFO Mark Peek, on the customer education and sales efforts that lie ahead in promoting the changes in VMware's cloud stack update

A good deal of the functionality and features in VMware's revamped cloud stack -- including vSphere virtual machines that support up to 32 virtual CPUs and one terabyte of virtual RAM -- is far beyond what customers need today. VMware is aware that its customers aren't going to migrate en masse to the new products, especially since many are still trying to work through the details of VMware's controversial new vSphere licensing model .

2. "We believe under the new model, 95 percent of our customers will see no change to their licensing costs. It's only as customers move to very high levels of consolidations and start driving their infrastructure to high levels of utilization, deriving the associated incremental value that licensing costs will commensurately scale. "

-- VMware CEO Paul Maritz, on customers' confusion and frustration over the licensing changes coming in vSphere 5.

Customers haven't reacted positively to VMware's new vSphere licensing model, and given the magnitude of what the changes appears to mean on paper, that's understandable. With vSphere 4 and vSphere 4.1, VMware uses a per-CPU licensing model that's based on the number of server cores. VMware is keeping the per-CPU model in vSphere 5, but it's now pegging licensing cost to the amount of memory that customers allocate to virtual machines on the host.

However, during the Q2 call, Maritz sought to clear up confusion over what the changes will mean for customers, noting that the only customers that will pay more are ones that hit the higher end configurations that vSphere 5 can handle. Since these customers will also be seeing greater efficiencies, paying more is a fair bargain, according to Maritz.

Next: Automation Technology In vSphere

3. "We have significantly improved the ability of vSphere to run workloads in a nonstop fashion, and we've significantly improved the automatic installation and configuration of vSphere itself."

-- Maritz, on the automated IT features and functionality that VMware has built into its cloud infrastructure stack

The automation features in vSphere 5 power what VMware is calling Intelligent Policy Management. Essentially, this lets customers set policies for the different workloads they need to run -- accounting for things like storage, performance, security, backup, and disaster recovery -- and have the underlying infrastructure provision all necessary services and manage the SLA on an ongoing basis.

Automation in vSphere also helps speed deployment and patching of hosts in the virtual environment: While adding a new host in a high availability environment used to take an hour, vSphere 5 customers will be able to do it in less than two minutes, according to VMware.

4. "What we're trying to do is to increase the level of automation because at the end of the day, beyond saving customers' capital expense, the bigger goal is to save our customers' operational expense. They fundamentally want infrastructure just to be something that, figuratively speaking, they can forget about. "

-- Maritz, on the new features built into VMware's cloud stack that will automate IT processes and make them more cloudlike.

Many VMware customers have moved beyond server consolidation and are now using virtualization to improve the reliability, availability and efficiency of their IT infrastructure. These functions are driven by automation technology that VMware has baked into vSphere and other products. It's VMware's view that management software shouldn't be layered on top, but rather, wove into infrastructure itself.

5. "We're trying to build out a suite of products so that they don't have to go through a very complex, a la carte integration process, [so] they can have key products for all the key major functions and get those easily."

-- Maritz , in response to a question from Heather Bellini of Goldman Sachs Group about whether the cloud infrastructure stack update will lead customers to buy adjacent products to vSphere.

VMware expects VARs to use its cloud infrastructure stack to build private clouds, and it also expects service providers to use it to build public clouds. VMware believes this hybrid delivery model will be the way most enterprises move to the cloud, and its goal is to tightly integrate the components of its stack to make it easier for customers to deploy -- and for partners to sell.