VMware Releases Strong Q2 Results, but Impact of vCloud Suite Unclear

Over the last year, a number of top executives at VMware have left the company, and there has been rising concern regarding VMware's ability to transition in a market where its core server virtualization hypervisor has become a commodity.

Last week, however, the company's Q2 report exceeded Wall Street's expectations, showing it has much more to offer.

VMware's profit stood at $244.1 million, or 57 cents a share, which is a 27 percent leap from the same quarter last year. Excluding items, 79 cents per share was earned by VMware, and Wall Street had expected 77 cents per share. During the quarter, revenue increased 11 percent to $1.24 billion. Following the report, VMware shares rose almost 18 percent to $83.82; their highest levels since March.

The company's success is a result of its enterprise licensing agreements (ELAs). According to the president and COO of VMware, Carl Eschenbach, about 37 percent of its total bookings were ELAs, which was a record for the company.

About 75 percent of VMware's vCloud Suite sales were part of ELAs, and Eschenbach commented: "[This is a] clear indication of our customers' long-term commitment to VMware and the software-defined data center strategy."

vCloud Suite is a bundle of several VMware management, networking, security and storage products that is sold as a single SKU, and was unveiled in August 2012.

An anonymous VMware channel partner stated that the vCloud Suite ELA figures highlight that enterprises are continuing to standardize on vSphere.

Despite this, it is possible that VMware was "wheeling and dealing on the ELA front" to get vCloud Suite to be part of agreements, according to the source.

They said: "It's the old Microsoft game: If you own it as part of an enterprise agreement, then the argument can be made at the line-of-business level that the software is 'free' because you already 'own' it."

There are no details from VMware regarding the number of enterprises installing and using products in the vCloud Suite, and it is therefore difficult to have an idea of whether customers are making the most of the whole cloud software stack.

The anonymous source added: "Just because every enterprise out there 'owns' things like vCloud Director, vCenter Operations, Site Recovery Manager, because they're included in the suite, doesn't mean that everyone is actually using those tools."

Seventy-five percent of VMware's vCloud Suite sales have come through ELAs, and this highlights the question of how many midmarket companies are using it. VMware's growth for the last few years was driven by this segment as virtualization moved downstream, and it is also where gains have been made by Microsoft and Citrix.

Alongside products like vCenter Operations Management suite and vCloud Automation Center, VMware has been developing its portfolio of virtualization and cloud management tools.

According to Eschenbach, the bundle of vSphere with Operations Management (vSOM) from VMware made sales at 1.3 times the average sales price of the standalone version of vSphere.

Eschenbach noted: "Our strategy to strengthen the channel and broadly see the market with our management products is off to a good start."

Another key aspect of VMware's business is end user computing, and license booking for these products, which are available as a bundle through the Horizon Suite, have increased to the mid-teens, compared to the same quarter last year, according to Eschenbach.

Lumenate is a Dallas, Texas-based VMware partner, and the regional vice president North America for that company, Jamie Shepard, has noted growth in VDI and Horizon Suite, as well as customers using VMware as a "portal" (service-oriented catalog) for private clouds.

Shepard said: "We just built out a whole applications-focused-only team that is driving a lot of VDI adoption."

Wall Street is expecting VMware's revenue to be at $1.29 billion in Q3, whereas the company is expecting revenue of $1.27 billion to $1.3 billion.

VMware is expecting a revenue of $5.12 billion to $5.26 billion in its 2013 fiscal year, which is an increase of its former prediction of $5.12 billion to $5.24 billion. (CY) Link