Demand for VMware Services 2017

I believe we have reached a point at which any negative thoughts and concerns about the effects Dell’s acquisition of EMC might have on VMware are getting put to rest. We are fast approaching the start of the fourth quarter of 2017, and all indicators show strong demand for VMware services in compute, network, and storage.

VMware has indicated it has had strong demand for new licenses. This increase in net new licenses is being characterized as driving sales ahead of its defined targets and expectations. Although the VMware and Amazon partnership is running a little behind schedule in bearing fruit, the interest in and demand for this new service remains strong for the now-August release. The new offering will roll out in two phases. The initial release, in August, will be focused on and based in the US. The second release will occur in the European Union in 2018.

Looking ahead to VMware’s forecasts for the second quarter of 2018, the company has estimated total revenue to be in the range of $1.84 to $1.89 billion, an increase of somewhere between 9 and 12%. License sales revenue is estimated to be in the range of $695 to $725 million, an increase of around 8 to 13% year over year. Expanding on expectations for the second quarter, for the fiscal year of 2018, VMware is estimating its total revenue to be around $7.61 billion, an estimated increase of 7.3% year over year, with the license revenue counting for $2.975 billion, a slight increase over the previous $2.97 billion.

VMware has indicated it believes that in 2018, three different areas have the best potential for strong growth. The breakdown of these areas should not be a shock for anyone, as VMware has made a strong push in marketing and sales in these areas recently. In the hybrid cloud space, VMware is assuming an overall growth of 10%, accounting for 10% of the total bookings. Next up is virtual networking based on VMware’s NSX; VMware is assuming a 35% increase, accounting for 13% of all bookings. Topping the list is the storage area and VMware’s VSAN technology, which VMware believes will have an increase of 50%, representing 5% of all bookings. VMware is estimating that end user computing (EUC) will have a modest increase of 1% and will account for 15% of all bookings. Compute will also have a slight increase of 1% and will account for 33% of all bookings. This leaves the management segment with 24% of all bookings, a 1% overall decrease.

An argument can be made that the “Dell sales synergy” has served VMware well and is helping it trend ahead of its expected targets. Dell has helped put the emphasis on VMware sales in such areas as storage to increase richer sales opportunities. Based on the most recent earnings report, VMware has estimated an increase in its contributions to Dell’s sales synergy in fiscal year 2018 at somewhere around $250 million. This estimated contribution would be 3% of Dell’s fiscal year 2018 total sales, up from the prior assumption of $200 million. VMware will continue to see over $1 billion in revenue coming directly from the Dell relationship over the next several years. The downside of this partnership appears to be VMware’s indirect sales channel. Dell’s accelerated adoption of VMware products into its sales apparatus has resulted in some friction and conflict with VMware’s current indirect sales model.

I continue to believe that VMware has just begun its partnership quest. Already, VMware is partnered with IBM and Amazon, and conversations with Google and Microsoft are rumored to be continuing, with the expectation of the eventual availability of VMware/Google and VMware/Microsoft solutions in the mix. All in all, the demand for VMware is still strong in 2017, and it is forecast to continue to be strong into 2018.

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