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VMware Q4 Earning Preview: 5 Big Things To Look Out For

Mark Haranas

From revenue predictions to finding a new CEO, here are the five most important things to watch for during VMware’s fourth quarter earnings report this week.

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VMware Q4 Earnings This Week

VMware is set to unveil its fourth fiscal quarter earnings results on Thursday as the virtualization superstar looks to continue sales growth despite the global COVID-19 pandemic.

Since the Palo Alto, Calif.-based company’s last quarterly earnings, VMware has lost some of its most important executives including its CEO Pat Gelsinger, who left to lead Intel, as well as its global Chief Operating Officer Raji Ramaswami, who is now CEO of Nutanix.

VMware hasn’t missed a beat since the pandemic first disrupted the IT industry nearly one year ago. In its third fiscal quarter 2021, which ended Oct. 30, VMware generated $2.86 billion in sales, up 8 percent year over year.

VMware will conduct its fourth fiscal quarter 2021 earnings call on Thursday at 4:30pm ET. Here are the five biggest things to watch out for.

Elephant In The Room: New CEO Search

VMware is in need of a game-changing new CEO.

Pat Gelsinger played a critical role in creating and building VMware into the software powerhouse it is today, having led the company for the past eight and a half years before leaving for Intel this month. Gelsinger nearly tripled VMware’s revenue during his tenure by increasing annual revenue from $4.5 billion to now nearly $12 billion. He also more than doubled the company’s size and led it through several transformations as well as dozens of mergers and acquisitions to create the modern VMware.

Right now, VMware’s Chief Financial Officer Zane Rowe (pictured) has taken over the interim CEO role. VMware’s global executive search to find a permanent CEO is being led by Paul Sagan, who is the lead independent VMware board member and chair of the Compensation and Corporate Governance Committee.

VMware will hopefully provide an update to investors, channel partners and customers during its earnings on Thursday regarding when a new CEO will be hired.

It also will be interesting to hear if VMware gives any details on the type of person their looking to lead the company or how the search process has gone thus far.

Zacks Consensus Earnings Estimate: $3.23 Billion; Same As VMware Projections

Zacks Consensus Estimate is predicting that VMware will report $3.23 billion in total revenue for its fourth fiscal quarter, an increase of 5.2 percent year over year. Zacks predicts the virtualization giant will post quarterly earnings of $2.05 per share, representing flat year over year growth. VMware has beaten Zacks Consensus Estimate in three of the past four quarters.

This reflects VMware’s own revenue projects of $3.225 billion for its fourth fiscal quarter, which it unveiled during its third quarter earnings report in late November.

One of the big sales bets VMware placed this quarter is on on-premise revenue. “Q4 is typically our seasonally strongest quarter for our on-premise product portfolio,” said VMware’s Rowe in November.

If both VMware and Zacks estimates are correct, VMware revenue for its total fiscal year 2021 will be approximately $11.7 billion, representing a $1 billion increase in sales compared to fiscal year 2020.

Will Subscription and SaaS Sales Hit $714 Million?

For the first time ever, VMware subscription and SaaS revenue surpassed license revenue in the company’s third quarter. VMware generated $676 million in SaaS and subscription revenue in the third quarter, up a whopping 44 percent year over year.

Over the past few years, VMware has successfully strived to make subscription and SaaS sales a larger portion of its overall revenue. VMware’s SaaS and subscription sales now make up roughly 25 percent of the company’s total revenue, a figure that continues to climb quarter after quarter.

For its fiscal fourth quarter, VMware is projecting $1.66 billion in SaaS, subscription and license revenue. VMware said approximately 43 percent of that $1.66 billion will be from SaaS and subscription, meaning around $714 million.

“VMware will continue to invest in and focus on further expanding our Subscription and SaaS portfolio, which we believe will drive company growth, customer satisfaction and shareholder value,” said Rowe during VMware’s third fiscal quarter report.

VMware businesses that generate subscription and SaaS sales includes VMware Cloud on AWS, Wavefront, Heptio, Pivotal Software, Carbon Black, VeloCloud, AppDefense and some end-user computing (EUC) sales, to name a few.

“We are on track to make most of our major product offerings available as subscription and SaaS in the next calendar year, providing a broader set of consumption choices for our customers with the flexibility they need,” Gelsinger said in November.

VMware Cloud On AWS Triple-Digit Growth

VMware Cloud on AWS is one of the company’s fastest-growing solutions as well as a major subscription and SaaS sales driver. Sales of VMware Cloud on AWS, also known as VMC on AWS, has consistently been growing at triple digit clip over the past several quarters.

In terms of its public cloud partnerships and go-to-market strategy, Gelsinger in November said VMware Cloud on AWS remains the company’s top choice. “The lead horse for us remains our preferred partnership with Amazon,” said Gelsinger. “And we had a very strong [third] quarter, triple-digit growth in that offering again. Amazon showing up to sell that offering has proven to be very strong. They have a dedicated sales team that’s ramping nicely.”

It will be interesting to see if Zowe or any other executive on VMware’s earnings call this week continue Gelsinger’s lead of placing AWS above the rest of the field.

Additionally, VMware has yet to unveil official VMC on AWS sales figures. There is a possibility that VMware could release VMware Cloud on AWS revenue numbers as the solution is now maturing in the market.

Dell Technologies Earnings Is The Same Day

VMware is majority-owned by Dell Technologies, while Dell CEO Michael Dell is chairman of the board at VMware.

Dell and VMware have created some extremely tight co-engineered solutions together including VxRail, the world’s No.1 hyperconverged infrastructure solution; one of the industry’s leading digital workspace solution: Workspace ONE; as well as close integrations around Dell’s flagship hybrid cloud platform, the Dell Technologies Cloud.

The Round Rock, Texas-based $92 billion infrastructure behemoth is set to report its fourth fiscal quarter earnings results on Thursday at 5:30 p.m. ET, approximately one hour after VMware reports its earnings.

VMware investors, partner and customers should tune in to Dell’s result, especially since Dell is planning to spin off it 81 percent skate in VMware later this year.

 

Learn More: VMware | Servers
Mark Haranas

Mark Haranas is an assistant news editor and longtime journalist now covering cloud, multicloud, software, SaaS and channel partners at CRN. He speaks with world-renown CEOs and IT experts as well as covering breaking news and live events while also managing several CRN reporters. He can be reached at mharanas@thechannelcompany.com.

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