VMware Now Claims More Than 250 Customers Are Paying For NSX Software-Defined Networking

VMware's fiscal third quarter results didn't wow Wall Street, but one bright spot was NSX, the software-defined networking technology it's wielding in an increasingly acrimonious battle with Cisco Systems.

VMware now has more than 250 paying customers for NSX, VMware CEO Pat Gelsinger said during VMware's quarterly earnings call Tuesday. That's a solid bump from last quarter, when VMware said it had 150 paying NSX customers and was on a $100 million revenue run rate.

"We have enormous momentum as we go into Q4 in that regard," Gelsinger said during the earnings call.

[Related: Cisco 'Livid' Over VMware's Poaching Of Key Data Center Executive]

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Gelsinger didn't provide an updated run rate figure that reflects the 100 or so newly added customers, and a VMware spokesperson declined to provide one when asked by CRN.

VMware inked several NSX partnerships during the quarter, including ones with Palo Alto Networks, F5 and Hewlett-Packard, as well as a global reseller agreement with Dell, Gelsinger said on the call.

One big use case VMware is touting for NSX is "micro-segmentation," which refers to using the technology to improve network security by preventing malware that infects one part of a network to spread to other parts.

VMware President and COO Carl Eschenbach said on the call that micro-segmentation is one of the most popular ways customers are using NSX.

It wouldn't be an exaggeration to say that NSX is VMware's most important technology at the moment. VMware paid $1.2 billion for Nicira, the SDN startup whose technology underpins NSX, and it needs to start seeing a return on that investment.

VMware is also looking to get a leg up on Cisco, which has been aggressively promoting its competing version of SDN, called Application Centric Infrastructure. VMware's NSX is software only, while Cisco's ACI is a mix of software and proprietary hardware.

While there could be room for both NSX and ACI in the marketplace, both VMware and Cisco are aiming to become the SDN of choice for data centers for the next several years.

In the past month, VMware has hired two key figures in the SDN space, including Dominick Delfino, a 14-year Cisco veteran who was a key part of its UCS and ACI sales efforts; and Guido Appenzeller, co-founder and former CEO of SDN startup Big Switch Networks.

NEXT: VMware Talks About Getting Salesforce Ready To Sell NSX

One big challenge VMware faces is getting its core sales team up to speed on selling NSX. Until a few months ago, VMware was only selling NSX through specially trained salespeople because the technology is still relatively new to many enterprises.

But Eschenbach said VMware's broad salesforce, and its channel, are now well aware of how to sell NSX to customers.

"I've been extremely pleased with our salesforce's ability to understand network virtualization and network security, and we are seeing our salesforce very quickly build a robust pipeline as we head into 2015 around NSX," he said on the call.

For the quarter ended Sept. 30, VMware reported revenue of $1.52 million, up 15 percent year-over-year, and earnings per share of 87 cents. Wall Street analysts were expecting $1.50 million and 83 cents per share.

While VMware's billings rose 13 percent to $1.5 million, that fell short of the $1.59 million analysts were expecting. Enterprise licensing agreement (ELA) bookings -- which have been a lucrative revenue stream -- were flat year-over-year, accounting for 29 percent of total bookings.

Eschenbach said this was due to larger deals incorporating multiple new VMWare products that are leading to longer sales cycles and weakness in Russia, Japan and Germany. VMware was also unable to close one large ELA with a U.S. federal agency during the quarter.

VMware shares closed down on Wednesday about 7 percent to $81.95 for a recent market value $35.25 billion.