Virtualization Vendors 4th Quarter Results

In February, several of the top virtualization vendor companies released their fourth quarter results and guidance. From these releases, we should be able to get an understanding of how the companies are performing. VMware, Citrix, and Red Hat are the companies for which I have some data to share. The source of the revenue reports is Cleveland Research Company, and the sources of the individual company reports are CRC and FactSet Estimates.

First on the list is VMware, which reported in with a revenue of $7.092 billion, a 6.7% increase year over year. First quarter estimates for 2017 are expected to be $7.577 billion, a 6.8% increase year over year.

Red Hat is next on the list. Red Hat’s fiscal year ends on February 28, so it is a complete picture of the year at that time. Red Hat reported in with revenue of $2.327 billion, which is an increase of 17.9% year over year. The estimated revenue for the next quarter is $2.625 billion, a 12.8% increase year over year.

Citrix closes out the list of companies to report their earnings, checking in with revenue reported at $2.730 billion, a 4.3% increase. It has estimated earnings for next quarter to be $2.828 billion, a 3.6% increase year over year.

Using the average reported revenue of VMware, Red Hat, and Citrix over the last few years helps to paint a pretty good picture of the companies’ trending performance. Starting in 2013, the combined reported revenue was $9.607 billion, a 13.4% increase year over year. In 2014, the combined revenue reported was $10.896 billion, which is also a 13.4% increase year over year. 2015 reported in with a combined revenue of $11.897 billion, a 9.2% increase year over year. 2016 reported in with a combined revenue of $12.149 billion, a 7.9% increase year over year. Finally, 2017 is estimated to have a combined total revenue of $13.030 billion, a 7.3% increase year over year.

What can we take from this? Year over year percentages are shrinking in a predictable fashion. That, to me, indicates that company spending is slowing down. We will have to see how long the downward trend will continue. VMware exceeded the estimated projections for this quarter largely due to maintenance and service agreements. Products in VMware’s portfolio that have been called out as primary contributors to the revenue strength for the fourth quarter are VSAN, NSX, vCAN, and AirWatch. When you break it down, fourth quarter NSX bookings have increased over 50% year over year. VSAN and VxRail have reported a growth of over 150% year over year. Some disappointments are that the fruits of the Amazon, AWS, and VMware partnership will not materialize until calendar year 2018 and that Dell is seen as an incremental contributor to VMware revenue within the next twelve months. VMware reported a record number of large deals in the fourth quarter, with thirteen deals reported as being greater than $10 million.

Citrix results are not as positive, with product licenses reporting a 9% decrease year over year, although license updates and maintenance reported in with a 4% increase year over year. Citrix’s Software as a Service (SaaS) showed an increase of 8% year over year; this can be seen as an indicator of the strength of the overall SaaS platform. We should continue to see these increase for most of the SaaS companies. Citrix has announced a Citrix-rated hyperconverged appliance program, and HPE has signed up as the very first partner of this new program. Things to watch for from Citrix include the company’s cloud transformation, ShareFile, and NetScaler SD-WAN solution in the near future.

On a more positive note, Red Hat third quarter 2017 (November of 2016) results reported revenue was $615 million, which is an increase of 18% year over year, with the prior quarter being reported as a 19% year over year increase. Red Hat subscriptions reported revenue was $543 million, which is a 19% increase year over year. Training and services reported revenues of $72 million, which is a 9% increase year over year.

In closing, there is some good news in the reports, but that news is overshadowed by the downward trend in year-to-year growth. Is that a trend? Will we be seeing a global downward decrease in overall spending, or are companies just holding out a little longer before making any capital expenses? We will just have to wait and see what the first quarter of 2017 brings to the industry guidance.

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