VMware's Management Presents at JMP Securities Technology Conference (Transcript)

Mar. 3.14 | About: VMware, Inc. (VMW)

VMware, Inc., (NYSE:VMW)

JMP Securities Technology Conference

March 3, 2014 14:00 ET

Executives

Alan Dabbiere - AirWatch, Chairman

Sanjay Poonen - Executive Vice President, General Manager, End-User Computing Business Unit

Analysts

Pat Walravens - JMP Securities

Pat Walravens - JMP Securities

All right. So I was asked to start by reading a forward-looking statement on behalf of VMware, which I’m really excited to do because I have never done it before. Statements made in these discussions which are not statements of historical factor forward-looking statements based up on 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 Form 10-Q, 10-K and 8-K.

All right. So we are just delighted to have sitting next to me here Alan Dabbiere, who is the Chairman and Co-Founder of AirWatch, which VMware recently acquired and then directly to my right, we have Sanjay Poonen, who is the VMware’s EVP and GM for End-User Computing. And both of these guys have a great background and an interesting perspective to bring to VMware. So what we are going to do is start as we are going to get to know them just a little bit. And then we are going to talk about certain current issues.

So Alan, we will start with you. Just for fun by the way, before [ph] the conference, I talked to people, I was going to do this, what people get to know people just a little bit, where are you from?

Alan Dabbiere

I live in Washington DC.

Pat Walravens - JMP Securities

Where are you from, where are you born?

Alan Dabbiere

Virginia Beach and then grow up in Arlington, Virginia.

Pat Walravens - JMP Securities

All right. And you founded Manhattan Associates in the 90s, right?

Alan Dabbiere

I did.

Pat Walravens - JMP Securities

Tell us a little bit about that.

Alan Dabbiere

Sure. So Manhattan Associates today is the largest provider of supply chain execution systems, about 2500 people, about $300 billion market cap and doing very, very well. And so started that company in 1990 out in Manhattan Beach, California, so don’t ever let an engineer name your company because when we moved to Atlanta that was confusing.

We left and moved over there with 30 people and within 3 years of moving we were about 800,000 people in public a tremendous growth there and we really accomplished that by looking at the market just a little differently than the other players. And then instead of thinking about it as moving inventory picking packet and shipping that was – how does the distribution center service the customer and it was all about quick response and compliance of how our customers were treating their customers and it really changed the industry.

Pat Walravens - JMP Securities

I have to [ph] ego into that pitch. All right. And then you founded AirWatch, right? So tell us – what year was that?

Alan Dabbiere

In 2006.

Pat Walravens - JMP Securities

2006. And what was the original idea on AirWatch?

Alan Dabbiere

So –

Pat Walravens - JMP Securities

It wasn’t that really what it is today, right?

Alan Dabbiere

No, no. It was – what was started by one of my first employees from Manhattan Associates.

Pat Walravens - JMP Securities

Okay.

Alan Dabbiere

So it’s kind of a second generation company of mine. And it started with one of my employees doing public wireless or hot spots. So many cafes are down in, in fact if you ever go to a Panera Bread, we run that whole network, it all runs through our NOC. We authenticate you. We do the security around that. When I joined him, I said boy, this is an okay business, but probably not great. And moved him over into the enterprise for network management that kind of moved us into end-point management and mobility. And having worked with Manhattan Associates where I had 20 years of mobile experience, we think about where those first handhelds were really deployed, the Intermix and the Motorolas that’s where they were.

So I had 20 years of recognizing that mobile is set by 1000 cuts. That every device needs to be configured, secured and supported and as we saw what was happening with phones and smartphones and they were more thing from being the single used product like a BlackBerry which is, I can get email. So what was happening with iPhone and android and the smartphones that existed, we saw this is a great movement into that market and took a really different approach in the way we did it.

Pat Walravens - JMP Securities

Very quickly why was it so successful? AirWatch was a home run, right?

Alan Dabbiere

Home run.

Pat Walravens - JMP Securities

Yes.

Alan Dabbiere

We got from 100 to 1600 people in three years. Everybody else in the market only had one way of viewing the world, it was the BaaS. Everybody viewed it as an appliance. And our competitors like MobileIron kind of tried to emulate that for iOS and Android. And the problem is smartphones today are not the BaaS problem. On BaaS, I got 5000 devices on an appliance that are all treated the same way people think about security the same way. We go for scale. The fact that I built the logistic systems for companies like Wal-Mart with my team, we understood that. In fact, we go for software-as-a-service.

The fact that we built it for enterprise role-based access control so that the way devices are managed for either sales is different than finance which is different than accounting which is different than engineering, or it is going to be different in Italy and France and Asia to get a privacy rule. So the sophistication of what we built and the fact that we were so scaleable from – we did the largest retailer in the world to the Supreme Court. The fact that the Department of Justice, in fact that we got that breadth. We ended up winning in the marketplace. We ended up with more employees.

And what happened in software is extreme outcomes. When you start getting that much more market share, we grew to 1600 employees, we were twice the size of our nearest competitor, this gave us the R&D engine to build a broader set of products that we have the full platform of email and content management and app wrapping and secure browsers. Suddenly we have the broadest platform, we can do it at the lowest price and all of a sudden god blessed software, but it becomes the rich get richer and the poor get poorer and it’s a created an absolute virtuous cycle for us and our customers.

Pat Walravens - JMP Securities

Fabulous. And then we will switch over to you Sanjay, and then we will certainly do on a combined basis, but why did you decide to sell to VMware, why not take a public and have another run?

Alan Dabbiere

We always know we are not going to take it public. This was really not in our plans. We used a lot of the leadings with a strategics as platform to tell them why not to buy some else because we didn’t want to muck in up the market buying the 27 best MDM and put a little life into.

Pat Walravens - JMP Securities

It’s safe to exit, right? Yes, there were number of 13. That was number 13 on the Gartner’s list.

Alan Dabbiere

Yes. Crazy what some of these companies did.

Pat Walravens - JMP Securities

Yes.

Alan Dabbiere

But, as we really got into the dialog with VMware and there was no one else that we got serious about. And as the dialog kept going on and on and on, we realized what great assets they had in virtualization. Then the next generation of mobile that we needed to be doing, things like app virtualization, their whole EUC strategy. What they got in terms of – these guys had built technology, virtualized an Android inside another Android, which doesn’t sound like a lot. But, when you are in healthcare or finance or regulated industries where you got this very insecured Android that the carriers are constantly updating. And you get a really stable secured Android inside of it.

I mean these guys are the smartest guys in the world. Their problem is, they didn’t tackle what mobile required today. And we were winning the market in, the MDM and the content management what people were buying today. These are the guys that generated the next generation of technology. The problem is by the time the market was ready for it, they were going to be irrelevant from a market share point of view. We all know market share matters.

When we saw, what they could bring us with the next generation of technology and then looked to combining that with 500,000 customers with 75,000 partners and a global footprint. When we looked at what our legacy could be and the way we could become the de facto standard not only in MDM, but across the entire platform of content management, mail boxes, email, machine-to-machine, we said my god, this is a home run of a combination. We couldn’t say no. Did I say enough?

Pat Walravens - JMP Securities

It’s great. It all works for a public company.

Alan Dabbiere

I never think Sanjay this is [indiscernible] in my life for god sake.

Pat Walravens - JMP Securities

All right, Sanjay. So give us a little bit on your background that covers all your at SAP, you have worked a lot of great places before that. And then, why you left SAP and why you took this role?

Sanjay Poonen

I was born in the neighboring town of Virginia Beach; it’s called Bangalore, India. I was kidding. I was born in India and came to the States to go to college on a scholarship at Dartmouth College, and then I end up sort of moving out to the California area to work at Apple. And then at Apple, but went later on to start a company that eventually sold to IBM in the analytics space.

Most of my life actually been an end-user kind of things related to analytics and big data. And the last seven years prior to joining VMware six months ago, at SAP, I had been involved in mobile in the last two years. And as I sort of watch what was happening in the mobile space from security to app development to messaging and so on and so forth. It was pretty clear that some company could become an enterprise mobile giant. And it would have to be a Switzerland type of company a company that wasn’t holding to a particular operating system, Android and iOS.

And I had tremendous respect for Alan. Alan and I had actually met sort of 12, 18 months ago, with Alan and John and David his brothers also here with it, built just a remarkable company, you could sort of sense from Alan’s passion and the eloquence for the space. That’s the level of investment. I know Pat, when you and I met just as I was joining VMware, I asked what you guys used internally.

Alan Dabbiere

Yes.

Sanjay Poonen

And he said we use AirWatch. And they talked about some closed deals with JMP even sort of –

Alan Dabbiere

You don’t even know you are using it. That was so great about it.

Sanjay Poonen

So we were just sort of heard those types of stories. And over the course of the last six months at VMware, we have been really looking at end-user computing with a much more strategic lens, we have been taking a lot of market share.

Pat Walravens - JMP Securities

Okay. But you have skipped the prior one here, we just – why did you leave SAP and join VMware?

Sanjay Poonen

I mean it was a fantastic run, seven years there. I wouldn’t have felt to at SAP. So I left. Building the analytics and big data business, I just sensed that the opportunity at VMware was going to be very, very strategic in this area.

Pat Walravens - JMP Securities

Yes.

Sanjay Poonen

And at the time when Joe Tucci and Pat started to kind of recruit me so to speak, I sensed that some company in this space of end-user computing, I had tremendous respect for VMware much the same reason Alan talked about. These guys have been sort of the Michael Jordan or in infrastructure software, one of the most innovative companies the fastest growing software company in history 0 to $5.2 billion now in 15 years. I mean the next fastest company you just talked to is Salesforce 0 to $4 billion I think in 14 years.

So when you have that type of growth, you are always looking at innovation both the product go to market side, when I felt this was a one of those opportunities where if with the right amount of focus and there were a couple of things happening in the market, this would be a great opportunity and that’s really what we have been seeking to do in the last –

Pat Walravens - JMP Securities

Interestingly – keep you on this for a second. But you had, I mean at SAP, could you have done that, right? SAP, how do you pronounce, is it Afaria?

Sanjay Poonen

Afaria is a MDM tool. I mean –

Pat Walravens - JMP Securities

At least if you read IT reports it looks like it has a lot of market share.

Sanjay Poonen

Yes. In the context of what SAP has done in mobility and much of that I charted the last two years, the applications in the middleware part of it what the analyst call moodle out platform. That’s really the opportunity that companies like SAP going to do very well. And quite frankly that’s not our focus, at VMware and at AirWatch now, we are going to complement that. But our thesis was that the management security and virtualization of mobile was going to have to be a company that really focused in infrastructure unless to an application company. And this is a very complementary to SAP focus.

So I think quite frankly SAP is a very natural partner for us as any other company that plays in that application platform space. So this really was more about, if you think about the end-user computing opportunity, we sense Citrix was vulnerable that really weren’t executing as well in the best op side. Mobile we think AirWatch is a much better play than [indiscernible]. This really the – factors that are coming happening right now where as we move from mainframe to client server to mobile cloud, this is an opportunity for us.

And the other thing that was also pretty clear to us was, again, where we needed to invest in a dedicated sales force to sell it to end users. And we have never done this from the 15-year history of the company. So last year, Carl and Pat have begun the investment of the specialized sales force that target end-user computing opportunities. And what we found is, we dealt with – we win in desktop deals now with a more innovative product in Citrix and that’s part of the reason you saw in our Q4 numbers, growth in the end user computing was 30% compared to negative 8% of Citrix.

So but we would lose the deals in the mobile place so just getting invited and as Alan mentioned and most often when I go and do those last calls, which you learn a lot from the last call with the customer, we find AirWatch from the other end winning. If you got those JMP or Geico or Wal-Mart or Shell, all the biggest airlines, retailers this was just a – still was some of our biggest account. So now you get the opportunity to go back to those customers.

One of them was actually with us this morning, oil and gas company and they were just delighted to think about the ways in which they were able to get the punch on the desktop side and all the sizzle on the mobile side to get it from one company.

Pat Walravens - JMP Securities

Great. Why don’t we see if there is any questions in the audience, and then I’m going to definitely going to come back if not. So we have anyone [indiscernible] out?

Question-and-Answer Session

Unidentified Analyst

[indiscernible]

Alan Dabbiere

No. Actually, quite frankly –

Pat Walravens - JMP Securities

We should repeat the question.

Sanjay Poonen

The question was, was it much more sales and marketing and how to play with the technology components that drives in the mobile. So quite frankly AirWatch had, was very complementary what we had. We messaged very heavily kind of a horizon mobile vision. But, quite frankly, other than mobile virtualization platform which we are now going to move underneath the AirWatch umbrella. We have nothing we really had nothing.

We’d intended to maybe think about building, so was a very easy conversation go back to our customers and say listen, we’d anticipate a potentially mobile device management app management, email security, we do know how we’re going to get it done, but now we have the answer. And the only overlap area was this – actually not overlap, the complement place would be to invest in mobile with the virtualization platform the Type-2 hypervisor.

We think as you think about other areas like content collaboration, if you could really bring the notion of security and simplicity to an alternative to Dropbox for the enterprise that’s a big opportunity. We’ve seen AirWatch invest in this really good product called Secured Content Locker, which was taking many of their customers in terms of market share, we think that also has a big opportunity. So it was easily, easy proposition to go to our customers and say the overlap is actually very negligible.

Alan Dabbiere

Let me amplify that answer just a little bit. So there is 2 billion devices in the world half of them touch the enterprise, this is a huge market space. Repeating what I said before, the fact that we were the one that set out and solved it at the enterprise level. My development team for my first company Manhattan Associates who have build the logistics systems for Wal-Mart, when I brought them over and we build the architecture of this system, it was unlike anything that existed. The fact that have the scalability to run at the multiple millions of devices on a single instance of software the fact that it had SaaS and multi-tenancy build in for a cloud deployment, but it would also do an on-premise deployment. The fact that because it was SaaS, we could also do the mom and the pops, we do – we win at the $2 window.

We win everywhere from the largest organizations in the world to the small, medium size businesses to the government organizations because the technology and architecture and our view was that when VMware was looking for a partner, again 500,000 customers they didn’t want a product that would address 30% of their customers. They wanted technology that could address that all and only AirWatch does that in the marketplace today. And secondly, they wanted a company that provided a platform not just MDM, which you got players to do that, not just email and you got people to do that not just content you got a couple of players to do that.

The future mobile experience because as the devices become your wallet, your credit card, your boarding pass and your house key everything is going to be a combination of corporate and BYOD and its going to be beyond what email is going to be the way you learn, your company educates you. We’re doing projects like Los Angeles unified school district going -- 650,000 iPads, we’re doing Lebanon a 100,000 Intel Android devices for their school system in Lebanon.

No one has the scalability and breadth of products and I think that personally we think that attracts.

Sanjay Poonen

Yes, yes absolutely, right. I mean in this deployment model, you’re going to have on-premise and cloud, the only company that really left ahead in the cloud area. And when we think about scale going from there 10,000 customers introducing it to a 500,000 customers many of these are the largest organizations in the world. They’re going to asking for scale. And then the platform part is going to be very important because very quickly you move beyond this managing the device, managing application, content, email and much more.

Alan Dabbiere

And the final thing is nobody ever looked at Atlanta and said boy they won on sales and marketing because they have the best technology sales and marketers out of Atlanta, Georgia. We had to lead with product.

Pat Walravens - JMP Securities

I agree. Can we – let’s drill down in the content management areas a little bit because that’s getting a lot of buzz right there is Oracle saying that Box File to confidentially you go public and they’re growing over a 100% and there is Dropbox just raised some ungodly money and some ungodly valuation.

So for example at JMP, we use it for MDM, but we I think just signed up for Box right. So I went to our IT person I said in Mercedes, I think we could have gotten, I think we could have gotten the secured content -- really that would be great actually [indiscernible]. So what do you guys have to do really that space, people view that space thing just brutal, right I mean these companies will burn ton of cash --

Alan Dabbiere

You’re right.

Pat Walravens - JMP Securities

This one is going to be commoditized how do you compete in that space?

Alan Dabbiere

This from our perspective was again another great reason for getting together with VMware. Let me start with the fact that our technology fact is built on VMware and EMC. Secondly, let me tell you what content requires a lot of data center.

Pat Walravens - JMP Securities

Yes.

Alan Dabbiere

Who can run data centers any better and more efficiently than the EMC federation of companies including all the other technologies we got virtualization with RSA and identity management securities.

Pat Walravens - JMP Securities

That’s interesting.

Alan Dabbiere

Thirdly, in very short amount of time we have picked up 2000 customers in our Secured Content Locker. In many instances those companies were using something else it’s a pilot product project. What they realized that the integration of MDM and email and email attachments and a mobile telecom expense, which is so many people roll out of Box or Dropbox in the first month they have a $200,000 phone bill because of the law of unintended consequences. We do every airline in the world in combination with Jefferson and Bowing because we could actually --

Pat Walravens - JMP Securities

How do you end up with $200,000?

Alan Dabbiere

Because all of a sudden they push all of your documents where you’re traveling internationally.

Pat Walravens - JMP Securities

All right. I get it.

Alan Dabbiere

Talking about my wife, she took my AT&T card and put it in her laptop downloaded a song from iTunes and 5064 years [ph] old later we had one song --

Pat Walravens - JMP Securities

Yes. That’s brutal.

Alan Dabbiere

It’s brutal. You multiple that by 10,000 employees and it’s a problem.

Pat Walravens - JMP Securities

Yes.

Alan Dabbiere

We can use the context of the phone, is it roaming, is it traveling, what’s the importance of the data, so that we only push the required information. If you’re an airline pilot and you need a flight guide you need it to get out, but we will work seven days in advance over the WiFi network to deliver those documents and we will let them sit lately on the device under the real document until on the seventh day we swap the new one with the old one. The amount of technology that we built into the used cases were pharmaceutical, for electronics, for medical products, for flight guides, for education so that we can be efficient, effective, integrated and secured is unparallel to anybody else.

So while they’re doing consumer grade document synchronization, we’re doing real business used cases from every flight guide in the world, every medical device company because the minute you put a brochure into someone’s hand in medical devices, you’re probably already late on the medicine and it’s a lawsuit. We put in place all of that through our Secured Content Locker, automating field forces, sales forces, repair guide in the way we drip education.

Our only way internally of growing from [indiscernible] people in this company, we use our Secured Content Locker everyday to built training videos and every week, our team get the new set of training videos and we can monitor that they watch them. We can grade employees on how well they do. We can – we’ve got all kinds of new statistics on employees based on this technology. It’s taking over our customer base.

Sanjay Poonen

Just a couple of sentence very quickly Pat. So the same brand that AirWatch built in enterprise mobility over a very short period of span of three years, two, three years it really gone from being really this sort of phenomenon exist about the iPhone, iPad. We’re going to do the same thing now collectively in secure content collaboration. If you came to our mobile world congress AirWatch had the biggest booth of any enterprise mobile player there. This is 70,000 to 80,000 people coming to Barcelona.

We also ran front page ads in Financial Times, Wall Street Journal and International New York Times and the ad said something like this from the leader in enterprise mobility now introducing secured content collaboration. So we think the brand now will start developing where you shouldn’t have to if you’re an end-user thinking about computing in your service that you need buy a set of desktop products from Citrix, set a mobile products on whoever have MobileIron are good and then a content collaboration products from Box or Dropbox.

Increasingly this is going to become a unified set of services that you can now manage all of this from one column sub-straight and that’s what we’re want to really do. And each of these areas that come up into our customer will be best [indiscernible] expect us to be really amplifying the amount of decibel level, we talk about content collaboration in the subsequent years and this will be not just AirWatch, VMware, but also the entire EMC family which does have a brand in content. And this really is --

Pat Walravens - JMP Securities

I didn’t really plan one thing hold on. So obviously we could talk to these two guys and take questions for quite a while. So right after this session, we’re going to go up to Collin 8, Level 2, right. And Caitlyn will walk anyone up. And we have time for another half an hour Q&A session with these guys. So I'm going to ask one more question and then anyone who wants to ask a question, I know there will be some, we’ll go upstairs and do that.

So my last question Sanjay, this is probably for you is, one of the pitches I’ve been making and may its not true is that the desktop computing paradigm in general is getting less and less relevant. If you agree and what are the implications of that?

Sanjay Poonen

Yes. I think certainly the desktop is morphing. I don’t think the desktop disappears. If you look at the data there is some of the data that Alan pointed out in the mobile side. There is seven billion desktops of which are doing out in the enterprise and the growth maybe, may have slowed, but there is a little bit of mix change.

Today most people prefer a Mac certainly a lot of the knowledge workers, there is a lot more Mac starting to show up in the enterprise. So people want a more nimble way to virtualize and manage and secure this desktop base and we think that there is several 100 million probably 200 million or 300 million of those billion desktops that need to be virtualized and managed in a more nimble way than whatever --

Pat Walravens - JMP Securities

200 to 300 million…

Sanjay Poonen

Yes. That’s the market opportunity for us we think in terms of what desktop virtualization and management could be. And that’s why I mean if you look at our success rather than Citrix and what’s called desktop virtualization, VDI or app virtualization and also in image management we have a protocol we are doing very well. We wouldn’t be growing the type of growth rate you saw in 2013, if that market was dead, okay.

Now the new desktop growth is certainly stalling.

Pat Walravens - JMP Securities

Yes.

Sanjay Poonen

And that’s where if you don’t couple a very robust desktop portfolio with the mobile your relevant long term. So certainly from our perspective the thesis was, if we did not play in the mobile market for today and tomorrow would be irrelevant to terms of end user computing. One could say the same thing about content collaboration that’s also going to be another big market.

But our thesis will be now as we expect to see this growth is certainly a billion plus dollar revenue opportunity where we could have growth in the desktop side, growth in the mobile side and then growth in content collaboration. Both, all three of these are materially big markets where if you just added the market caps of Citrix whatever any of the mobile companies think they are worth certainly we’ve made one acquisition and then you put Box and Dropbox, you add those market caps that is the opportunity for end-user computer.

Pat Walravens - JMP Securities

All right. Well, it’s such a treat to have both of you guys on stage at the same time. Thank you very much for coming.

Sanjay Poonen

Thank you, Pat.

Pat Walravens - JMP Securities

And again, we’re – anyone who wants to ask questions, we’re go up to Collin 8 and have a break out very old fashion break out.

Sanjay Poonen

All right. Thank you.

Alan Dabbiere

Thank you.

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