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VMware's NSX, VSAN Sales Surge In Q2, CEO Gelsinger Bullish On Dell-EMC Deal Impact

VMware is seeing strong momentum as sales of its software-defined data center technologies overtake sales of older computing-based technologies such as ESX and vSphere, and as sales through Dell and non-Dell OEMs continue to grow.

VMware said Monday its software-defined data center technologies, particularly its NSX software-defined networking and VSAN software-defined storage, helped it beat Wall Street's profit and revenue forecast during its fiscal second quarter.

Excluding items, VMware reported earnings of 97 cents a share and revenue of $1.69 billion. Wall Street analysts had forecast 95 cents a share and revenue of $1.68 billion. VMware shares jumped more than 9 percent to 68.26 in after-hours trading.

VMware CEO Pat Gelsinger said during the vendor's earnings call that Dell's pending acquisition of EMC -- the majority stakeholder in VMware -- is expected to quickly expand its business.

Gelsinger said NSX and VSAN are appealing to a broader range of customers that are looking to run, deploy, and manage more applications in the cloud.

[Related: What Will A Merged Dell-EMC Look Like?]

"The rock stars of Q2 were NSX and VSAN. … We see nothing changing in the second half," Gelsinger said on the call.

NSX license sales more than doubled in the second quarter of 2016 year-over-year and VMware now has more than 1,700 customers using the technology, Gelsinger said.

NSX revenue should continue to grow as VMware continues to see positive early results from new SKUs targeting midmarket customers, according to Gelsinger.

"These new SKUs are designed to help us reach into the mid-market. … These are also a way to reach more into the channel," Gelsinger said.

VSAN revenue also more than doubled over last year, and over 5,000 customers are now using the technology compared to 3,500 customers last quarter, said Gelsinger.

Zane Rowe, VMware chief financial officer, said his company also saw hybrid cloud and SaaS revenue grow by strong double digits over last year's quarter, accounting for about 8 percent of total revenue.


Rowe said sales of VMware's server virtualization products accounted for less than 50 percent of total revenue during the quarter. Bookings for management, NSX, VSAN, and end-user computing technology now account for over 50 percent, he said.

Hyper-converged infrastructure technology bookings, which include VSAN software-defined storage and the VxRail hyper-converged infrastructure software stack, grew by 200 percent over last year, Rowe said.

Meanwhile, Gelsinger said VMware still expects to see a revenue acceleration of $1 billion per year after Dell completes its acquisition of EMC and increases its resale of VMware's compute, storage, and mobility technologies.

At the same time, Dell Chairman and CEO Michael Dell wants to see VMware's business with other OEM partners increase, said Gelsinger.

"Michael is not just a champion of [increasing Dell's VMware sales], but he would like to see us increase our overall sales to other OEMs," he said.

VMware during the quarter reported six deals worth $10 million or more. Of the company's top 10 deals in the quarter, all 10 included VMware's end user computing technology, eight included NSX, and eight included VSAN, said Gelsinger.

Looking forward, VMware expects revenue for all of fiscal year 2016 to be about $7 billion, which is up from $6.7 billion for all of fiscal 2015. That is expected to include license revenue of about $2.7 billion, which would be flat compared to fiscal 2015. VMware is also guiding non-GAAP earnings of between $4.27 and $4.33 per share, up from last year's $4.06 per share.

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