Taking Another Look at VMware’s First-Quarter Financials

Based on VMware’s first-quarter financials, this year is shaping up to be quite a year for the company. It should not only be a year of change, but also one of anticipation regarding the results of a recent partnership as it starts to come to fruition.

Some of the changes that VMware has had to work through come from something that was completely out of its control—namely, Dell’s recent acquisition of EMC. Once the reality of the acquisition became clear, speculation began in earnest about what effects it would have on VMware as a company, the partners, and the way VMware will conduct business in this new “Dell’s VMware” world.

In every corporate acquisition, the company that has been acquired needs to adjust its financial reporting to match that of the parent company. VMware has realigned its financial quarters such that its first quarter, which used to end in March, now ends in April. Given this adjustment in reporting date, the numbers are skewed when compared to last year’s. That said, VMware has released some better-than-expected results for the first quarter.

Some key points to take away from this report are that VMware’s revenue is up 9% ($1.736B) year over year, an increase over the expected 7% ($1.675–$1.725B) year over year. This strong showing has been led by sales of service and maintenance plans and the power of the contribution from Dell. This should lead to continued growth and a positive second quarter; forecasts and guidance predict another 9% to 12% increase year over year.

The products in VMware’s portfolio that have the strongest reported performance growth in both revenue and customer base should be no surprise to most. The first to report comes from the world of virtual networking and VMware’s NSX. VMware has been able to increase its NSX customer base to over 2,600; with this growth, the NSX bookings have increased more than 50% year over year. Over on the storage side of VMware’s portfolio, VMware has been able to nurture the growth of the vSAN customer base to over 8,000. vSAN bookings have increased by more than 150% year over year. End user computing (EUC), which includes both AirWatch and VDI licenses, has increased by more than 20% year over year. Finally, VMware is reporting that bookings for hybrid cloud and Software as a Service (SaaS) have increased over 30%.

Looking toward the future, VMware expects that due to the Dell acquisition, Dell will contribute to VMware’s continued success by providing increased revenue of over $1 billion over several years. $250 million of this return is expected to be released by the end of fiscal year 2018, which will be reported in January of 2018. Dell has made some changes in its internal structuring of the sales model for the VMware product suites to help support the drive for greater revenue. Rumor has it, and it is believed, that Dell has increased commissions for the sales of VMware products inside its internal sales force and has worked to increase the sales team’s understanding of the VMware product line. It is believed that this change was implemented at the start of the fiscal year.

Finally, it is anticipated that the Amazon and VMware partnership will bring VMware’s functionality into Amazon AWS. So many VMware customers have demanded to be part of the VMware-AWS beta trials that the trials have been characterized as “oversubscribed” due to all the interest. In fact, the initial demand for the new AWS offering has been much greater than the actual availability of the beta offering. This clearly indicates a strong initial demand for the new AWS offering, but VMware has noted that there is not much of an expectation of any real measurable reported revenue return until next year.

All in all, VMware sees continued forward momentum for the year, especially with NSX, vSAN, hybrid cloud, and the EUC business to lead the charge forward. The second-quarter reports will be coming out next month, and VMware has forecast reported revenues of $1.84–$1.89 billion, which represents another quarter of greater than 9% year over year. Its first-quarter results indicate to me that this is going to be a strong, solid year for VMware.

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