Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Paul Ziots - Vice President Investor Relations

Raghu Raghuram - Executive Vice President Cloud Infrastructure and Management

Ramin Sayar - SVP and General Manager Cloud Management Business

Mike Leeper - Director of Global Technology Columbia Sportswear

Anthony Luscri - Investor Relations Senior Manager

Analysts

Kash Rangan - Bank of America Merrill Lynch

Nehal Chokshi - Technology Insights Research

VMware, Inc. (VMW) "What’s New at VMware" Conference Call February 18, 2014 11:30 AM ET

Operator

Good morning. And thank you all for holding. Your lines have been placed on to listen-only mode until the question-and-answer portion of this call. (Operator Instructions) I would like to remind all parties, the call is now being recorded, if you have objections please disconnect at this time.

And I would now like to turn the call over to Mr. Paul Ziots, Vice President Investor Relations.

Paul Ziots

Thank you. Good morning everyone and welcome to the first in what we expect to become a quarterly series of What's New at VMware conference calls. This first conversation is focused on cloud management. On the call, we have Raghu Raghuram, Executive Vice President Cloud Infrastructure and Management and Ramin Sayar, Senior Vice President and General Manager for our Cloud Management Business. I'm also extremely pleased to welcome Mike Leeper, Director of Global Technology at Columbia Sportswear, a VMware customer and Kash Rangan, Analyst at Bank of America Merrill Lynch and co-host of this call.

I'll begin with the few basic facts regarding our cloud management business; Raghu will then speak to our software-defined data center strategy in cloud management's world in the software-defined center. From there, Ramin will cover our cloud management mission and product groups and then Kash will host the Q&A session with Mike focusing on Columbia Sportswear's experience as a VMware customer. From there, we'll open the call to questions. You are invited to ask questions via telephone or email, if you choose email, please send questions to Kash Rangan at kash.rangan@baml.com or to Anthony Luscri at aluscri@vmware.com.

Before I start, you should know that statements made on this call today which are not statements of historical fact are forward-looking statements based upon current expectations. Actual results could differ materially from those projected due to a number of factors including those referenced in VMware's most recent SEC filings on forms 10-Q, 10-K and 8-K. A webcast replay of this call will be available for the next 60 days on our company website under the Investor Relations link

Now before we get to Raghu, I’ll cover some basic facts relating to cloud management at VMware. In Q4, non-standalone vSphere license bookings were greater than 45% of total license bookings. This compares with over 30% one year ago, so license bookings from non-standalone vSphere increased significantly over this past year. Cloud management is a major component of this metric and is our fastest growing product group at VMware.

Cloud management is also the main driver for customer uptake of our suites, such as vCloud suite and vSphere with operations management, enterprise license agreements or ELAs our reflection of long-term strategic commitments to VMware and in Q4 approximately 50% of our ELAs contained vCloud suite again driven by cloud management. For all of 2013, cloud management license bookings were up over 40% versus 2012 and we more than doubled the number of partners selling cloud management. Finally, even though cloud management is our fastest growing product group, only 10% of our installed base is penetrated, which leaves plenty of headroom for growth.

With that I’ll turn it over to Raghu.

Raghu Raghuram

Thanks Paul and good morning. So, before we dive into the details of our management product line and how customers use it, let me provide a high level overview for our company’s product initiatives. As we’ve said many times in the past, we have focused on enabling our customers to make the transition from the client server era of computing to the mobile cloud era of computing.

Accordingly, we are investing in key major areas. The first one is what we call the software-defined data center and I’ll speak a little bit more about that in a second. The second is our hybrid cloud service offering which we introduced into the marketplace last year. And the third of course is our end user computing offering, which expands both our traditional Windows manageability solutions under the [View Umbrella] as well as our recently acquisition of AirWatch for the mobile customer base.

So let’s talk briefly about the software-defined datacenter. The software-defined datacenter is an evolution and an expansion of what we have done historically in the datacenter for our customers. Although phone is decade of our existence, our success and our customer success wasn’t enabling our customers to make best use of their compute infrastructure through the application of compute virtualization technology.

What we have done is taken the same principal that work for compute virtualization and the compute portion of the infrastructure and expanded it to not only compute, but also storage and networking thereby covering the entire datacenter. And then we tied all together with the new generation of management technology where the emphasis is not traditional counsel-based management, but the emphasis is actually on machine learning and automation to enable not only high degrees of efficiency, but also high [loads] of automation, but most importantly, high levels of agility.

So, the management in automation technologies that we have brought into the market over the last few years has spoken with constitute of fastest growing product group. Not only is it our fastest growing product group, it forms the very core of our entire product offering across the company.

As the slide shows, the software-defined datacenter technologies notably compute virtualization, storage and network virtualization from the core technology that we deliver into the marketplace as a technology solution by the results of the same technology that has gone into building our VCHS cloud offering and when we tied the two together using policy-based management in automation and Ramin will go into the stack in a second and it consist of three big elements, our cloud automation stack, our cloud operation stack and our cloud business stack.

All of these put together deliver the software-defined datacenter where the customer has a seamless experience whether we are operating a datacenter in-house or we are renting capacity from an external cloud provider be it VMware or a VMware partner. And that provides a foundation for running both traditional, as well as the next generation of applications. And then these applications are delivered to end users via variety of devices, both the traditional desktop, as well as mobile devices. Collectively, all of this constitutes what we call the software-defined enterprise and STDC is the foundation of software-defined enterprise.

So with that introduction about STDC, let me turn it over to Ramin to talk specifically about the management products and then we will be happy to take questions at the end.

Ramin Sayar

Thanks Raghu and thanks to all for joining us. As Raghu was stating just a second ago, the vision around the software-defined enterprises is ultimately to enable our constituents IT to deliver IT as a service. And doing so what we have to be cognizant of is that customers have to deal with today’s architecture and data centers and tomorrows desires with how they evolve the move.

And so the strategy is formed around IT as a service to normally expand and expand beyond a traditional high virtualized compute and now network and storage environments, but also embracing extent to heterogeneous multi-vendor and multi-platform environments. Most notably on premise private cloud, off premise public cloud or refer to the bridge between those around a hybrid cloud as well as end users’ need to access various applications and services for end user computing.

So our cloud management strategy and technology is normally supporting traditional vSphere, but also non-vSphere based private clouds and expanding outside of the data centers to support users and also public clouds.

Thinking of our mission, our goal has been and continuous to be to simplify the complexity for our customers, manage through unique and differentiated technology as Raghu mentioned around machine learning and automation, thereby empowering our IT constituents, traditionally infrastructure and operations teams, to better govern the very services that they either build and deliver or either managing on behalf of lines of business. There has to be across not just the platforms they manage, but also heterogeneous and other providers.

So looking a little bit more closely at the three pillars that Raghu referred to, we break them down as defined; one around cloud automation, two around on cloud operations, and three around cloud business management.

In the first tier on cloud automation, the fundamental goal for us is to automate the delivery of not just the infrastructure across compute network and storage, but also as importantly the various applications, those that are already been virtualized, those that are going to be virtualized both traditional and new architectures. Nearby expanding them to our users interacted management and use those applications across best option devices.

And doing so, when we look at the opportunities for us is each customer from a target market perspective that is looking to expand the beyond their high virtualized or semi-virtualized environment if it is 20%, 30%, 40% through 60% and 80% and how they want to be able to start to automate the delivery of (inaudible) services. And that is through policy governments automations for not just infrastructure as a service but also as equally important the initiatives around (inaudible) and applications to improve cycle time delivery of the application services.

This is an important area of our business, it's premised on some acquisitions and organic technology and it's part of the vCloud Suite as well as full standalone.

The secondary are is around our flagship cloud operations and that's most notably driven by the vCenter operations product line that we introduced couple of years ago as well as augmented with the product called Log Insight. Simply put this allows unique ways for customers to ensure to health risk and efficiency as well as compliance not just infrastructure, but also all the applications and ultimately the services that we need to manage on behalf of customers.

This is a unique technology in the sense that it uses machine learning and analytics to understand behaviors of workloads and characteristics, to start to help automate the reclamation and rightsizing and proactive management of infrastructure and applications. As a result it's very applicable to our small customers as well as our global large customers. They're not just sold by VMware, but also the strong channel that VMware has had, it continues to developing workload.

So any customer that's looking to improve the operational insight in this dynamic virtual environment as well as the cloud environment of today as well as the legacy environment of yesterday vCOPs and Log Insight products are very applicable for it.

Last but not least, as customers are looking to better manage the services that they deliver as well as those that are delivered from outside centralized IT, most notably either public cloud or hybrid cloud or SaaS-based partners and delivery providers. The need and importance around governing and managing these services it becomes more and more critical in order to deliver IT-as-a-service therefore run IT like a business.

So the portfolio around this product line is really around enabling cost transparency, as well as ability to have a length into the quality of these services delivered by central IT or outside provider. As such the target market for us is any customer most notably an enterprise customer who’s looking at expanding the highly virtualized environment to a private cloud or hybrid cloud initiative or any Fortune 2000 customers that’s looking at reinvesting and understanding where the spending money in IT using the worth in the $50 million to $75 million IT spend and they’re looking at how they can improve that investment to build, evolve IT and transition IT. So those budgeting and forecasting as well as costing capabilities that allow you to start small mature evolve to better manage IT and IT services.

So what’s new in cloud management? Last year we had tremendous set of releases that we brought to market at VMware Events both in San Francisco and Barcelona. This is a recap of what we announced then with respect to IT-as-a-service technology is broken down around cloud automation, cloud operations management and cloud business management, most notably the products I just referred to on cloud automation is centered on what we referred to as vCloud Automation Center and we’ve brought brand new technology and architecture to market last year in Q4 and we’re quickly and aggressively expanding on that in first half and second half of this year.

The second area for us is around cloud operations. Maybe you are probably familiar with product called vCenter operations that’s been the flagship products for customers to be able to operational inside into vSphere and supporting hardware and infrastructure below as well as the heterogeneous environment around vSphere and also the workloads running on vSphere.

So we add improvements in our capability of vCOPs particularly around application health and visibility but we expanded the big data strategy around vCOPs, not only focused on structure time series data but also look at unstructured data around loss, and this together we believe is most comprehensive innovative platform from managing the highly dynamic environment of today and tomorrow.

Last but definitely not least our cloud business management technology centered around the ITBM suit and referred to as IT business management allows for either SaaS based or hosted or on-premised deploying of this technology, ability for IT finance groups, infrastructure teams, operations teams and also even the CIO to be able to get a better lens into the cost and quality services.

We updated our that portfolio last year was not only the - these but also the ability with VMware IT Business Management 1.0 start all those customers who are looking at cloud metering and costing for less deployed on-premise and off-premise, vSphere based, Amazon based, Asure based and be able to account for those costs, be able to provide that visibility to users, so they can more efficiently make decisions as to where they request for services.

This line up is very comprehensive. Now we have been integrating not to each other, but also supporting other environments. And as we look to evolve our portfolio, not only support vSphere or continue to support vSphere but also the hybrid heterogeneous world that we will be referring to.

So let’s take a closer look at the first pillar around cloud automation. Since we put as I mentioned before our view and our vision here is to provide a consistent governance and policy framework that’s centered around how you can templatide or standardized services for engineering and development teams as well as other constituents across the enterprise. Whether those services delivered internally or externally it shouldn’t matter you want the same policy in (inaudible) control for infrastructure as a service, most notably refer to as IAS or the ability to develop to manage and release applications, similarly around desktops or anything as a service as referred to for centralized IT to be able to manage.

So usually what we see is when customers are looking to make a decision on a tool like this, it’s either centered around initiative for application teams where they are trying to improve the cycle time and to deliver you faster applications or for developers when they do move around DevOps to improve and increase automation and therefore productivity or third to be able to deliver the need of agility from IT to be able to standardize services more commonly requested and reduce the overall cycle time. So we thought automation center is a very critical product in our portfolio and if delivered through not only in the vCloud Hybrid service as well as a vCloud Suite but also standalone depending on customers’ needs and requirement.

If you look at our automated operations this was referring to vCOPs and Log Insight. We are pioneered to concept of machine learning and data analysis a few years ago when we brought vCOPs 1.0 to the market and it’s been the fastest growing product line to-date. And simply put value that customers see is not only operational inside as to the health risk and efficiency, but also improved automation as to where this right size reclaim and redeploy services most notably VM’s, operating systems and alike. When we did about a year and half ago is we introduced the capability to look at unstructured data, not just structured data that we collect from vSphere and non-vSphere environments and therefore augment structured analysis with unstructured analysis and bring the best of the two together, there by deliver the leading comprehensive analytic solution to the market today.

Last but not least, as I referred to before, any customer who is looking at a private cloud initiative or public cloud initiative, a hybrid cloud initiative or just better costing of services from centralized IT, we call bill of IT services. It is a customer that’s interested and requires sort of capabilities around what we refer to as IT business management.

On the left, on the screenshot you see something we introduced around ITBM 1.0 product late last year that allows the tenant administrators, the infrastructure teams who are providing self service catalogue of pre-instantiated services built to allow users to see the cost of the private cloud, the public cloud whether delivered by centralized IT or a public cloud provider out there and make and formed educated decision as to what type of service they are going to request and what the cost associated with that service is versus guessing and have end users a lot of manual work or (inaudible) to be able to provide this visualization.

On the right, what you see is once you’re able to instantiate these services, now you can start to meter an account for these costs on a monthly basis, on a quarterly basis, look at for VM, for application by line of business and the like. These are pre-instantiated dashboards and analysis that provide out of the box for customers to able to leverage.

Together we’ve integrated not only the building for cloud costing metering into the catalogue, delivered through vCloud Automation Center, but provides us foundation for customers to do cost based pricing or whatever their mechanism is and expand and evolve, therefore mature to be able to deliver full IT as a service around hardware, software and labor, most notably calculate and represent a full build of IT services to lines of business constituents, the CIO, and the end user.

As we’ve been designing an architecting this platform to round up for this modern era that we refer to as a software-defined enterprise, we’ve been keeping in mind that we want to simplify and automate as much as possible. And the ability to expand beyond the on-premise your data center to any other end point, particularly around a public cloud or hybrid cloud service will be which we refer to as VCHS.

The benefits our customers see uniquely here is they don’t have to have different set of tools to go on-premise to off-premise, they don’t have to redo the processes, they don’t lose IT control, they don’t have to re-architect network, security issues. And therefore all the mirage of challenges associated with an application running on-premise versus an application running off-premise are ability or inability to move them back and forth.

With the line-up that we refer to n the continuing integration and innovation that we’re driving for within the cloud management products, it allows customers to seamlessly extend from their own data center leveraging [these sort of] clients with vCloud Connector, but more importantly, the vCloud Automation Center, vC Ops and IT business management suite to and with the vCloud Hybrid Services that we brought to market last year that Raghu referred to.

Well, that’s just a quick snapshot of kind of the portfolio. Now with that, I’d like to turn it back to Kash

Kash Rangan - Bank of America Merrill Lynch

Thank you very much Ramin. And first of all, congratulations for all on the launch of this wonderful and exciting series. And thank you also Mike for taking the time to answer some of the questions that were put together. So Mike, can you give us a brief overview of Columbia Sportswear including how many VMs and servers you run?

Mike Leeper

Sure, absolutely. The Columbia Sportswear based in Portland, Oregon, we manage our global footprint here from my staff around the world, primarily based on in Portland. We have about 45 locations globally, not counting any of our retail sites, powering those are 600 physical servers and depending on the day, somewhere around 5,000 virtual servers or guest operating systems.

Kash Rangan - Bank of America Merrill Lynch

Great. And I am a fan of your products. I use your products very (inaudible) I’m not a sort of a big sports person but just so you know.

Mike Leeper

We appreciate that.

Kash Rangan - Bank of America Merrill Lynch

Thank you, most welcome. What probably your engagement with VMware, how long have you been working with VMware and how would you describe that relationship?

Mike Leeper

Sure. It’s really been kind of an ongoing relationship we’ve had with VMware since really 2004, 2005 timeframe. As we as a company were growing and starting to experience the pains of outgrowing our physical data centers around the world, we really needed to start finding ways to not only put some control around the physical growth and then using the classic VMware story around virtualized and the compute architecture, but also then continuing to grow our platform to support the needs of the business really all the way up through today. We do run essentially 100% of our data center on VMware technology and truly we consider VMware one of our core partners in that platform and really a core friend of ours in our overall architecture.

Kash Rangan - Bank of America Merrill Lynch

Great, that’s nice to hear. What is the value proposition that VMware brings to Columbia Sportswear, in general specifically regarding cloud management, what is the value propping into some of the more established management console companies?

Mike Leeper

Yes, absolutely. So for us, the value prop that VMware brings to us is that set of technology and an overall relationship that allow us to be better, to be a better IT organization for our business, specifically around kind of how Columbia has grown and the speed that we’re making changes as we go to market and to different areas and different technologies, we need to make sure IT is able to meet those demands as fast we can. So really when we look at leveraging our investments not only in the physical way or hardware side but also in kind of the classic VMware hypervisors technologies.

We start looking into our management stacks where we can build out the base architectures. But if we can’t truly operate them and be as efficient as possible, we are not going to gain the most benefit out of them. So when we look at our legacy management tools, that’s to manage not only our classic physical architectures but some of our what we consider our interim kind of physical virtual infrastructure, those tools just really didn’t keep up, they were not able to operate and perform in this new virtual highly dynamic world, the way that we needed them to.

So, we in the last really three or four years have started looking into various new technologies and sometimes looking into very small companies to look for that tool that its’ really going to solve the problem for us. And in the last 18 months, things are really starting to settle down for us. We started to lean very closely to VMware and the technologies that they’ve deliver to the market that we have been talking about so far this morning. Those are the types of things that we are using, the vCAC tools, the vC Ops stools and as well as some of the other technologies form VMware really allow us to leverage the investments we’ve made in the VMware Technologies and provide that level of automation and security that we really need to truly be better.

Kash Rangan - Bank of America Merrill Lynch

Great, like what motivated the company to purchase vCloud suite as opposed to standalone vSphere and standalone cloud management technology?

Mike Leeper

Sure. So for us, looking at the suite f technologies and we were under an enterprise license agreement with VMware in kind of the previous versions of this where we owned standalone products under our larger licensing agreement, and we leveraged them very well. We had deployed the majority of the technologies but then when VMware came to market with this newer licensing model specifically around the suite of technologies, we started to do some internal calculations about, which technologies were we using, which technologies were going to be the future as we moved forward for us. And really it just became a negotiation with our VMware teams to kind of decide the right way to acquire and continue to acquire these technologies. And the suite of technology products really fit exactly into where we were going. We knew that we had a core usage of the base component of the suite and were either currently deploying or had plans to deploy really the majority of the rest of the products that make up the suite. So it really was a very straight forward conversation.

I don’t like to enter into technology directions with my team and make them think about how they are going to have to license things. I want my team to deploy the technology that’s needed to make the business better and will let myself and the other managers as well as the sales teams figure out how to pay for it all. And having that suite licensing really allows us to let the technical teams drive forward with the technology that is best for them and we can properly understand from a financial aspect what those costs are going to be in the background.

Kash Rangan - Bank of America Merrill Lynch

Got it, which brings us to the financial side of it; how did you justify cloud management, the cost of cloud management from VMware? Did you make any ROI calculations? And if you did, is the ROI from utilizing cloud management in conjunction with vSphere, is that greater than vSphere alone and how much greater?

Mike Leeper

Yes, ROI is an interesting one for me. We rarely do internally to our projects ROI calculations and that might concern people when I start saying that specifically my CFO. We just don’t spend a lot of time trying to figure out how much money we’re going to save by deploying technology. My job as an IT professional for this company is to empower the business to take advantage of technology as fast as I can. So, when we look at deploying new technology whether it’s management suites of VMware or core platforms from our VMware technology partners as well, we really look to how do we enable the business to move faster, how do we enable them to take advantage of say in that new market we’re moving into or that new product technology we’re trying to announce to the public as fast as they can because those are the people that are going to make the money for the company.

So, we don’t spend a lot of time looking at the ROI, but what we need to do is make sure we technologies we’re confident in being able to deploy and being able to deploy successfully to meet those demands of the business. So, we look at some of the cloud management architectures and then software products from VMware. We know and trust that they are going to integrate themselves into our existing platform and truly we have the overall relationship of VMware Columbia to back us up if things were to not work right.

Kash Rangan - Bank of America Merrill Lynch

Fantastic, what percentage Mike of your VM’s is cloud management from VMware deployed against and what can this percentage really grow to?

Mike Leeper

Sure. That’s a good question, and I’m going to make it really easy. It’s deployed against 100% of my architecture. So, we run today a very mature private cloud architecture on-premise across our datacenters and really have some interesting used cases today that we’re deploying against public cloud whether it’s the VCHS architecture from VMware, as well as our hybrid models that leverage both of those.

We really need these tool sets around deployment and provision against, as well as building to monitor and to securely control these platforms to all work together. So, we have the suite to deploy it across my entire environment. We leverage with some pieces specifically based on workloads, but truthfully, we have the same tool sets available to us a 100% in our architecture because I need my teams to be able understand and truly leverage those technologies when needed.

Kash Rangan - Bank of America Merrill Lynch

I’m not sure if (inaudible) that’s I say to VMware that it’s 100% virtualized that from the automation that has that's great, where the stumbling glass might you encountered before going, but VMware from managing to automation, and what surprise you the most and post limitation versus your expectations?

Mike Leeper

Sure. And specifically around the management and automation tool sets, as we kind of build out this virtualized platform and started to layer on sort on some of our classic management monitoring tool sets, they really won't working very well. They are -- lot of our legacy tools really fought in a physical world and thought about things that stayed and put at100% of the time.

And as we started getting these very dynamic highly flexible environments, we really started to struggle. And a lot of times we're kind of working around the problems without truly solving them by trying to continue to use some legacy tool sets. And as we started to migrate into the VMware tools and obviously has the VMware tool started to mature in the last couple of years. We no longer had to be making concessions to make all tools work the way we wanted them to, everything started to work better and really started to enable us to truly take advantage and see some significant improvements in our performance and our ability to monitor and automate the environment.

So, our assembling blocks early on were really just clearly integration pieces in making old tools act new ways. And inevitably what we found was a lot of those old tools just could not make those changes, they were struggling to catch up with where we needed to go and VMware came to market with tools that all of a sudden we’re working the way we were thinking already and we're able to put them in it will start moving forward.

So, we have some stumbles early on, not so much with the VMware tools, but really trying to implement legacy tools into our modern environment. But really things just kind of started working right when we really started to invest in the Microsoft to the VMware family of technology as we move forward.

At the end of the day, the surprise for us isn’t really a surprise, it’s the -- the VMware tools truly do work and they’re do working well wish to be VMware family of technologies. Things work and we don't have to spend a lot of time troubleshooting or trying to reevaluate to find another tool set to accomplish something. We trusted the VMware tools will provide that for us as we sit today and as well as we look forward.

Kash Rangan - Bank of America Merrill Lynch

Great. And my final question for you, what are the other problems that you foresee solving VMware products that you're currently not [attacking]?

Mike Leeper

Well, that’s a really wide question. We’re always looking for the next problem. As we mentioned earlier, we’ve kind of solved the datacenter issue today with our full software-defined datacenter strategy. We’re 100 virtualized. We have a high level of automation and management tools sets to power those.

What we’re really looking for now are ways that we move the walls of our datacenter. As we start looking at how do we become truly flexible and highly scalable to meet the needs of our business? A lot of time the physical location of my datacenters around the world is the limiting factor. And this is not a disaster conversation at times; it’s more of a capability conversation. There are physical aspects of a building that I can’t overcome quickly. So we’re really looking at leveraging technologies like VCHS for VMware to build out these hybrid cloud models where we still control and manage and operate our workloads, but I don’t have to live within the four walls of my building so that we can truly start being highly dynamic and enable the business to move left, right, up and down as fast as they want.

So we’re really spending time looking for things like that which has led us to investments as well in VCHS and investments in things like the virtualized networking stack from VMware, as well as some other software-defined storage layers that we’re looking at from not only VMware, but from AMC as far as to some of our platforms.

So we’re really trying to find to kind of where the holes of our architecture are today. And my teams spend a lot of time sitting in the conference room asking ourselves the question that we couldn’t answer should the business ask us and then go find the technology to solve that problem.

So we’re constantly looking for that next thing and trying to solve the problem that the business has not asked us yet so that we truly can be that enabler for our business to take advantage of technology and direction they want to go as fast as they can.

Kash Rangan - Bank of America Merrill Lynch

Great, Mike. So Paul, I will open up for questions, but as a quick reminder if you wish to post your questions by email anonymously, you can send an email to aluscri@vmware.com or feel free to send it to me as well kash.rangan@baml.com and your question will be post anonymously. With that operator, why don’t you tell us that how the audience can fill for questions?

Question-and-Answer Session

Operator

(Operator Instructions)

Paul Ziots

Why we are pulling together any questions from the phone. Why don’t we start with any email question that is coming thus far? Kash, let’s start with you, did you have any questions via email that you want to start up with. We wanted to give the folks on the telephone sometime to dial in.

Kash Rangan - Bank of America Merrill Lynch

Yes, in this call. Paul I’ve got the first question. Are they considering open stack for any used, used cases from Columbia, are you considering open stack for any used cases at all, which management tools will be used with open stack and how do they compare with VMware?

Mike Leeper

Sure. It’s a question we get a lot and honestly one I try to avoid for the better part of 2012 and 2013 for sure. I happened to spend a bunch of time late 2013. I actually had one of the big open stack dimensions. Trying to better understand really where open stack the platform was and where Columbia could possibly leverage it in our future going forward.

And what was really decided is there are some very good used cases for open stack and there are some interesting concepts for us to talk about, but our core is VMware and our core hypervisor is going to stay at VMware going forward, but we think and we start looking into some of these really dynamic hybrid cloud models but we will start leveraging some open stack power clouds for some used cases.

And we want to make sure that we are designing kind of our platforms moving forward that we don’t isolate ourselves too much, but truthfully our core technology is going to be VMware and our management suites are truly being used from the VMware technology families and we assume and expect those tools to be able to leverage not only our VMware powered cloud but also possibly open stack clouds going forward.

Kash Rangan - Bank of America Merrill Lynch

Mike, you are a very popular man. I have another question from a investor in VMware. Can you ask Mike to talk about how his spending has changed directly with VMware overtime and for some of the vendors that have lost budget share as you get deeper with VMware?

Mike Leeper

Sure. We’ll answer the second part of that question first. As we’ve kind of matured down this virtualization path really the vendors that have kind have lost investment from us have been in some cases our physical layer server vendors we just don’t have as many servers physically as we used to and that’s kind of true and kind of not and that we’ve allowed growth to happen much faster because of our virtualized architecture. So we have not necessarily slowed down our investment in physical layer servers, but we have not had them increase at a speed that overall growth has happened apparently because there is a lot of other vendors that have lost out for us.

Probably data center vendors where we own and operate handful of our data centers and restaurant and co-location facilities we have not had to expand our footprint as fast as we would have had we have been our physical platform going forward. As far as our spending and IT budgeting around VMware, really what it’s allowed us to do as we’ve progressed down this highly automated highly virtual journey. What it allowed us to do is to be a lot more transparent in our cost and I know very well and defensibly what it cost me to run various parts of my business, I can tell a business unit what it cost us to run their application for them using the tools from VMware we really have the dynamic cost model so that we are opening up this transparency level.

So I don’t have to sit in front of the CFO, every time I need to spend money and explain why IT is spending money. Now I have a little bit of an overhead that I need to acquire and perform just to keep my business running, but the majority of my cost is based on business drivers. And so I have to have those conversations around why we’re spending money or why we’re reinvesting money somewhere else, I don’t have to be the only one defending that.

I can have the line of business explaining what they are trying to do and why they need this technology to work and then I can fill in the gaps about what those costs are. So really the ability to be this dynamic and this scalable, we have a couple of different cost models we can work within and we can be able to show the business what it truly costs us to run.

Kash Rangan - Bank of America Merrill Lynch

Operator should we take some question (inaudible) Paul.

Paul Ziots

Yes. Thank you, Kash. Why don’t we check in probably not surprising people are little shy to ask questions live by voice. So Anthony let’s check-in with you on email questions.

Anthony Luscri

Yes I have one, this is directly toward VMware. Can you compare the revenue opportunity for management and automation versus vSphere?

Raghu Raghuram

So, the short answer is over a period of time we think opportunity in our management automation solutions is larger than even the core vSphere opportunity. And that is because of a couple of factors. One is that the set of products that we apply against an infrastructure all in application running against, running on top of vSphere infrastructure is much broader than just one product, right.

As Ramin laid out, it’s a collection of products which is the cloud operations, cloud automation, cloud business management and many more to come, just kind of started on our road map. Secondly, the addressable set of opportunities for our management products are not going to be strictly constrained to the vSphere footprint alone. As Ramin pointed out and as Mike referred to we design our management products to be able to manage and automate infrastructure and applications that are non-vSphere oriented as well such as open stack, such as AWS and other cloud platforms in the future.

And then the third aspect of our management and automation roadmap extends beyond back end the infrastructure, but also ties in with our EUC efforts which are all about applications and devices that are running with end users. So, we think the management opportunity over the long haul is significantly larger than the core vSphere opportunity.

Kash Rangan - Bank of America Merrill Lynch

Thanks Raghu. Anthony did you have a covered question or two that came in online.

Anthony Luscri

Yes, I have one here. This one is for Mike. Mike mentioned that they looked at some other management tools from smaller companies before standardizing on VMware's management tools. Can he disclose what those products and tools were?

Mike Leeper

Well, you're going to make me think in time. One of them have been acquired by others bigger companies as times going forward. We had I'm trying to think, we definitely had some various components of tool sets from larger companies, whether it's BMC or HP that we use as well as some CA products. But when we start talking some of the niche products we looked at some management tools from VIM for sure, we've had some capabilities from Solar Winds and some tools there. But, there are also lot of very small products that we spend $5,000 and $10,000 on at a time to evaluate that really either didn’t pent out or [in the meeting] acquired elsewhere, but I realized we can’t remember the exact product names.

Kash Rangan - Bank of America Merrill Lynch

Thank you, Mike. Anthony did you have another questions?

Anthony Luscri

Sure, here’s another. Server virtualization has been around over decade, what drives the needs for management tools now versus before?

Ramin Sayar

Yes, this is Ramin. So I think simply put as customers continue to mature and evolve their virtualization efforts not just from compute but now even to network and storage and as a continued need for improved efficiency, the processes around reclamation and rightsizing and redeploying and operational insight become either increasingly important. So, those customers that are today just server virtualization customers or those customers those expand beyond server to network and compute or all customers that need management automation.

Kash Rangan - Bank of America Merrill Lynch

Thanks Ramin. I think we actually have a break so asking live on the telephone. So operator would you please pass that person to.

Operator

Thank you. Our first question today is from Raimo Lenschow from Barclay's.

Unidentified Analyst

Thanks a lot. It’s actually Chris [Hughes] on for Raimo. This question was for Mike actually. Mike can you just talk us through as far as the kind of (inaudible) cycle around the various hypervisors, I mean how often do you evaluate kind of the core functionality. And is it really just not even a function of just evaluating the core hypervisor anymore? Is it really thinking about the broader platform beyond just the hypervisor? And then it kind of ties in, but there is some maybe misconception out there around how equal the hypervisors are at this point in time with KVM and HyperV. Can you maybe just give us your thoughts there and how close the platforms are at this point?

Mike Leeper

Sure, absolutely. So really around kind of we evaluate and when we evaluate, we are constantly evaluating something and somewhere. I do sit on a very large full platform enterprise really from Microsoft and have access to Hyper-V code and licensing pretty easily as well as being here in Portland, Oregon, the teams at Redmond have no problem coming on down to show off their tools every once in a while, when they’ve got some new, they want to show us.

So, we see the Microsoft suite routinely, we also have kind of often our conversations around KBM when time comes. And really for us, the time we spend today is making sure, we are keeping our eyes open to what other technologies are out there and what other hypervisors are doing that might be little different or doing in a way that VMware is not doing today. And then it really comes down to value proposition for us. As we look at what those features are that might be different and/or better than what we have today, where do they fit in our environment and is that feature worth the change away from a kind of a standardized platform for us. And the most of the guys’ answer is no, and it’s not because the features are not necessarily significantly better but because it’s more than just a hypervisor conversation, as I think you kind of alluded to there.

For us, the core hypervisor is just one piece of our datacenter these days. We have these management operation tools, we have support contracts, we have skills and training that my team needed to be available for. And soon as I start splintering away some of that core standardization, things might not work as well as I want them to.

Now, all the management suites that we have from VMware do play across platform. However, they are clearly focused and lead with supporting the VMware hypervisor. So that’s really where we are most comfortable with. It doesn’t mean, we don’t look but we want to know what’s out there, but we still have to make those honest conversations for ourselves around, how do we continue to operate at a very high level that we are today and not spend time trouble shooting and hunting down, we are building compatibilities we’re better off when everything works together going forward.

Unidentified Analyst

That’s great. Thanks a lot.

Paul Ziots

Thank you, Mike. Thank you, Chris. Operator, do we have another question on the phone?

Operator

I do, our next question is from Nehal Chokshi from Technology Insights Research.

Nehal Chokshi - Technology Insights Research

Yes, thank you. This is for Mike as well. I believe that you guys are leveraging the vCloud Hybrid Service. If you talk about which workloads are you actually putting into the vCloud Hybrid Service and also discuss how you are dealing with data protection and so the [event data]?

Mike Leeper

Sure. So yes, we are currently leveraging VCHS for a handful of different situations. This goes back a little bit to what I talked about kind of earlier in the call where we are making investments in technology and spinning up access to technology that we can then enable the business to use when they need to. So, we’ve got a couple of different use cases where we are using VCHS somewhere around some short-term DR strategies where we have locations around the world that we may not have invested in, in large scale physical DR strategies for but we might have a situation that we need to take advantage of moving some workloads out of a building or out of a region quickly where VCHS we believe will be that target for us. So we are enabling those types of workloads to happen right now. It’s not a full time access, but once we’ve proven the technology works, we know we have that tool in our tool box to use going forward.

We’re using it in some scenarios around data center moving or office moves for us where we can provide zero downtime to a building that is going to go through the process of moving by moving our workloads to a provider and then bringing it back in-house and then really looking at kind of what else we could use. So I mentioned about removing the four walls of our data center. We know there are situations that I am going to need to be able to position our workload to take advantage of a feature or function that I don’t have physically in my building today, whether that’s internet bandwidth or content distributions and another things. We know we need to position workloads correctly and sometimes it’s not in my physical buildings.

When it comes to data security and kind of data governs protection, those are all things that we engineered into the technology. We are leveraging some of VMware’s tool sets around this -- the data security and encryption in the data; and then rest comes down to contracts and negotiations with providers themselves. We have yet to find a situation now that we can’t work our way around whether from engineering or contract perspective. And to be honest, we have not talked about moving say core ERP into a public provider but we think those conversations will work themselves out when the need arises. We are not overly concerned about not being able to solve those problems, but their questions needed to be asked and both from a technology perspective and a legal perspective, answer is no. We’re not scared of them; we’re just kind of looking forward to having those conversations when the time is right.

Nehal Chokshi - Technology Insights Research

Thanks.

Mike Leeper

No problem.

Paul Ziots

(Inaudible) Let’s take -- we have another incoming question to answer for Mike, which is great. Let’s take that and then we’ll go to Cash for a final question.

Kash Rangan - Bank of America Merrill Lynch

Yes, this is for Mike. Question is it seems that you are close to 100% virtualized, how fast do you expect the virtualized workloads to grow going forward?

Mike Leeper

Yes. I generally get a report every morning from my server team exactly where we are from a virtualized perspective and it generally is 99 point something percent; there is always one or two things that flowed out there that having that virtualized or can’t be virtualized specifically, but we are 100% there. The growth for us, we do anticipate continuing to grow pretty quickly, because we’ve really removed a lot of those barriers that a physical base supply chain and architecture provides to the company.

We find ourselves being able to spin environments quite quickly for business requests, both for production level requests as well as we’re moving into some developed models around our development cycles and our e-com platform where we’re able to truly provide them the capabilities that they need at a very low price point for various durations of time.

So, I would assume our growth stays in the 100% range year-over-year from a server perspective and really we’ve -- when I use the term server, I’m talking about the guest operating system, the physical layer just kind of grows along with it based on our requirements.

Kash Rangan - Bank of America Merrill Lynch

Hey Paul, I have a question from one of our investors of Mike. One, two questions, one is that are you using NSX and vSAN, and test for [DAV] kind of capacity? And the second question was, how do you view your incremental workload growth rate and your willingness to work with Amazon versus growing private cloud?

Mike Leeper

Sure. So, the first question around VSAN and NSX and probably can wrap a whole bunch of kind of technologies in those conversations. These days there is very little, I don’t have actively running in my data center in some fashion, a lot we can talk about, a lot we can’t talk about but specifically around NSX, yes we do have NSX up and running in a small platform in our environment really to evaluate where it is and how it fits into our environment, what things we can leverage. We’re really excited about looking at some of the integrations between our net scale and load balancers and our Palo Alto firewalls and how they play and enable us to do some things we never could have done in the physical world with internal firewall and internal load balancing on the network. So, we have NSX and we have it up and running and are excited about its future for us.

VSAN again, we’re -- we have we’re looking at some interesting scenarios as well as some of the products form VMware or for VMC around Viber and some of those storage based virtualization layers we’re looking at and trying to figure out where and how they fit in our environment to truly deliver that value back to the business. And there was a second part of that question that I forgotten.

Kash Rangan - Bank of America Merrill Lynch

The Amazon Web Services.

Mike Leeper

Sure. So we today, we’re going back to some of that cost modeling and our transparency around cost. Today we believe based on our cost models that we’re more efficient to provide workload platforms to our business running at ourselves that we can acquire from Amazon or we can acquire from really any other cloud provider today. We have not found a situation where the business asks us for something and we can’t deliver them, so we don’t have that conversation really around shadow IT and the classic concern that people, developers are throwing cards down to acquiring AWS licensing, or it’s not that we’re against it, we just don’t have to do that. We can provide the resources needed to the business. So, we’re looking at ways to leverage AWS, so if we look at our hybrid cloud and some of those conversations, but we really have not had to deal with those integration concepts because we know today our cost models prove that we’re less expensive internally and we don’t’ have to provide that service to the users because we’ll able to do everything else internally.

Kash Rangan - Bank of America Merrill Lynch

That’s great. And Mike, I think you mentioned, how many servers do you have in Columbia?

Mike Leeper

About 5,000 worldwide.

Kash Rangan - Bank of America Merrill Lynch

Okay. So that’s an important thing because many investor clients that bring up this idea, I think there is a less degree of appreciation as to what kind of scale you need to be at before you can realize that your internal IT is actually cheaper than Amazon, so, just to secure your insights. Paul, back to you.

Paul Ziots

Thanks Kash. If you have one final question to wrap it up, I don’t know if you have one for Raghu or for Ramin; if not, we’ll conclude. It’s upto you Kash?

Kash Rangan - Bank of America Merrill Lynch

Yes. I do have a question for Raghu. Raghu you mentioned at the previous Analyst Day, $40 million virtual machines, what percentage of that installed base do you think could be realistically attached to the highest end versions of management in automation if any tearing as to a percentage attached to lower ASP products versus higher ASP products?

Raghu Raghuram

Yes. Like most large markets and as we have also seen with the vSphere market itself different products tend to be more suitable for different parts of the marketplace. Where we are today, we are at the very start of the product life cycle for some of these products and so we are deliberately targeted them towards the higher end customers, for example vCAC or IT business management products. But some of the more mature products for example vC Ops, they are working their way rapidly down to mid-size customers and then in the future, we expect it to be even the very small customers.

So it’s going to be a dynamic picture based upon the timeframe you are looking at. For today I would say, vC Ops is anywhere from let’s call it mid size and above and vCAC and ITBM are for the larger customers, but next year it will go down even further and ear after that will go down even further.

Paul Ziots

All right. Thank you, Raghu.

Kash, big thank you to you; Mike, huge thank you to you for making this a very interesting call, thank you to all of you who asked questions. If you have any further questions or if you have feedback on this call, we’d loved to hear from you. Please contact to IR team. Have a great day. This is the conclusion of the call.

Operator

Thank you. And this does conclude today’s conference. You may disconnect at this time.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: VMware's Management Presents "What's New at VMware" Conference Call Series (Transcript)
This Transcript
All Transcripts