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

Call Start: 11:30

Call End: 12:30

VMware, Inc. (NYSE:VMW)

"What's New at VMware" Conference Call Series

June 5, 2014 11:30 AM ET

Executives

Paul Ziots - VP, IR

Sanjay Poonen - EVP and GM of End-User Computing

Alan Dabbiere - Chairman of AirWatch

Armand Capote - Senior Director Infrastructure Operations at Stanford University

Mark Mellis - Information Security Officer at Stanford University

Anthony Luscri - IR, Senior Manager

Analysts

Brent Thill - UBS

Rick Sherlund - Nomura Securities

Kash Rangan - Merrill Lynch

Michael Turits - Raymond James

Operator

Welcome, and thank you for standing by for the What’s New VMware Conference Call. All participants will be in a listen-only mode until the question-and-answer session. (Operator Instructions) Today’s conference is being recorded. I would now like to turn the meeting over to Paul Ziots, Vice President, Investor Relations.

Paul Ziots

Thank you. Good morning, everyone, and welcome to the second and our new quarterly series of, What’s New at VMware conference calls. Today’s conversation is focused on end-user computing. On the call, we have Sanjay Poonen, Executive Vice President and General Manager of End-User Computing, and Alan Dabbiere, Chairman of AirWatch. I am also extremely pleased to welcome Armand Capote, Senior Director Infrastructure Operations at Stanford University and Mark Mellis, Information Security Officer at Stanford University both VMware customers, as well as Brent Thill analyst at UBS and co-host of this call.

I’ll begin with a few basic facts regarding our end-user computing business. Sanjay will then cover our end-user computing strategy and Alan will speak to the exciting solutions AirWatch has added to our portfolio, since joining VMware in January of this year. From there Brent will host a Q&A session bringing in Armand’s and Mark’s experiences as VMware customers and then open the call to questions from all of you.

You’re invited to ask question via telephone or email, if you choose email please send questions to Brent Thill at brent.thill@ubs.com or to Anthony Luscri at aluscri@vmware.com.

Before I start, you should know the statements made on this call today which are not statements of historical fact are forward-looking statements based 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 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 Web site under the Investor Relations link.

Now before we get to Sanjay, I’ll mention a couple of facts related to end-user computing at VMware. In Q1 non-standalone vSphere license bookings were greater than 45% of total license bookings. This compares with greater than 30% one year ago, so license bookings from non-standalone vSphere increased significantly over this past year. End-user computing is a major component of this metric and with the addition of AirWatch is our fastest growing product group at VMware with license bookings growth of over 35% in Q1.

With that I’ll turn it over to Sanjay.

Sanjay Poonen

Thank you very much Paul, it’s a pleasure to be here with Alan and thank you Brent for also being on the call and of course we’re really honored to have our customers Armand and Mark with us. What I want to do over the next several minutes is really motivate to you what we’re trying to get down in end-user computing before we get to the heart of what I know you’re all waiting for which is the Q&A with our customers.

Now everything that’s being done with the world today is moving through this notion of a mobile cloud. And at VMware we’re laser focused and being the infrastructure provider for the mobile cloud era. And this has moved very rapidly from sort of mainframe 60-70 years ago to the client server perhaps the last 20 or 30 years which most of us have lived through actually the mobile cloud era where we believe we’ll be able to get to billions of users and millions of apps.

In our VMware portfolio you have heard us talk about three priorities, and those three priorities remain consistent. The bulk of our focus of where we stared being one of the fastest growing software companies in the last 15 years is the software to find datacenter, where we virtualized compute storage networking with the layer of management where this heads us either on premise, private clouds or public clouds and we pioneered this notion of the hybrid cloud, pulling it together for an end-user focused on desktop and mobile with end-user computing. So our three areas of focus remain consistent.

As we’ve look at 2013 and 2014, you’ve seen some of these areas of growth compute management, vCloud suites and vSOM and of course kind of where we started our desktop focus around just view and the hybrid cloud. Going forward we see some areas of meaningful opportunity networking, storage. Our recently announced Horizon 6 launch with Stanford was actually a really key part of in the launch. Our mobile products which are just completely new this year with AirWatch and of course continued great progress with both the hybrid cloud and VSPP. So we’re driving growth not just for today but also for tomorrow.

Inside end-user computing, you have also seen our focus on the total available market. And within this we believe it’s not just a 20% CAGR opportunity to end-user computing, we have an opportunity to be the undisputed leader in this category. Some of our competitors are vulnerable, some of our competitors are smaller, we think there is a great opportunity for us to innovate, VMware has always been about building the best products and customers come, and that’s where we’re focused on that a 5x or 10x competition, we also think of the 500,000 customers of VMware at least 50% of them should easily be candidates for our products.

We have been on a roll in terms of our focus on innovation and partnerships over the course of last six to nine months. I just want to illustratively walk you through what we have been doing. In October last year we announced the acquisition of Desktone, that was the pioneer in desktop-as-a-service. We announced this before any of the others in the market got into it, like Amazon and others. In December we announced a partnership with Cisco where they were reference selling Desktone to their cloud service providers. But we announced in January some strong hires from within the VMware being promoted and also from the competition, re-strengthening our bench.

At February at the Partner Exchange, we announced some real strong partnerships with Google and F5 and NV and many of you came to Partner Exchange, and saw that end-user computing was almost one of the stars of the show. At the same time, we closed the acquisition of AirWatch, the biggest acquisition we have done in the history of VMware at this big event, the Mobile World Congress in Barcelona at the end of February welcoming Alan and John and his team to our organization. Horizon DaaS, we put the Desktone product, now desktop-as-a-service on vCHS, offered at $35 per user per month I joked cheaper than a price of a coffee per day, and then announced last month the launch of Horizon 6 it’s just a leapfrog product in the desktop category of the competition. So this is just an unprecedented pace by which we are moving in the course of innovation and partnerships.

As we think about what’s happening in the world of end-users and apps and being a lot is changing and this is another key point we think that just brings an opportunity for us. On the users side people are moving from desktops and laptops the tablets and phones and maybe your favorite car. There is more software today in the modern car than the first 1970s spacecraft. People are thinking about applications whether it’s on premise or in the cloud. And data while people may have stored this is in SharePoint or at Oracle in the past every CIO I talk to is looking for a secure alternative to Dropbox.

In this landscape as we look at our opportunity this one slide captures the entire portfolio of VMware 300 plus products in one graphic at the bottom left you see where we have virtualized infrastructure compute, storage and networking this could be on-premise or in the hybrid cloud, private or public cloud. The layer on top of that is management and automation and that’s sort of the body but when you complete the body with the head where we can go from desktop and laptop to mobile and machine to punt in collaboration with some underlying workspace services like identity and analytics and workflow we think we’ve got the best of the head and the body with lots of connective tissue between them.

So the challenge in the space today is that if you breakup what was the top of that diagram the sort of the head and the body you see just a lot of fragmented solutions today across each of these. For example, the desktop, you’ve got a set of players, in the mobile you’ve got a set of players. In the content collaboration place you’ve got a third set of players and in these underlying services you’ve got players who are just either startups or may not be existing in the future. Every CIO I talk to says they don’t want to work with fragmented players they want unified solutions. Every space if you look at SAP where I came from ERP was FI and MM and SV in the past and became ERP or CRM, salesforce, the sales cloud the marketing cloud the service cloud becomes a custom cloud.

This is our vision of what we’re trying to get done with AirWatch. The specific portfolio is today we believe to be envy of the industry. In each of these products areas our commitment to our customers is going to be best of breed relative to every competitor yet unified and connected not just between end-user computing but between end-user computing in aspects of our software defined datacenter. As you know, our software defined datacenter tenant’s rates about 99% of the Fortune 500 type customers, okay. So we have a strong way in which we can upsell this to our customer base.

Moving forward before I turn it over to Alan there are three areas of our key focus in innovation in the desktop area. This covers everything from the virtual desktop where if you and talking about Horizon 6 launch this is the first time in the industry you have a unified platform of VDI and app delivery, never happened before. And then couple that with the physical image management for laptops and PC’s delivered now either on-premise or in the cloud through our desktop-as-a-service we think this portfolio called Horizon is the strongest in the industry leapfrogging everybody else.

With that let me turn it over to my new friend and colleague, Alan Dabbiere.

Alan Dabbiere

Sanjay thank you so much and thank you all for attending this session. What I wanted to do is give you a little background on AirWatch and how we started and things that make us different, talk about some of the important elements of mobility that our customers are facing and the breadth of the solutions that we provide.

So to start with my personal background I started a company called Manhattan Associates so then I wouldn’t even talk about this if it weren’t really relevant to AirWatch but that company started rolling out mobile back in 1990 in this case we nearly 25 years of recognizing that mobile is depth by a thousand cuts. When you think about it every one of these devices needs to configured and secured and supported. People are very demanding that they get email every day, god bless BlackBerry but they proved that if people don’t get their email it makes the front page of the Wall Street Journal.

And I am still the IT manager at my own house and I’ll say when my wife doesn’t get email I’ve got a really bad night at home so you take that problem and multiply it by a 1,000 or 10,000 or a 100,000 employees and it’s clearly can be thankless job. So the second thing about this background of Manhattan Associates that’s important is that when we rolled out mobile it was through the lens of the enterprise and through very large scaled enterprise mobility. When you think about the implementation of BlackBerry very much once a security team decided how long the pass code and how many complex characters the pass code should have the rest of the implementation was very similar.

It was all of very much email centric but today’s mobile used case is about applications and content. And the CIO stone is configured very different than the CEO and different than the sales, the head of sales and the background that we came out of every person’s device was configured differently. And many of our competitors built their product through the lens of the BlackBerry Enterprise Server, which was an appliance to manage 5,000 devices where we really attacked this to be a very large scalable solution that could handle multinational companies in every country of the world.

And the result of this is, today we have got what we believe is the largest customer base in the world at over 12,000 customers. And more importantly the broadest platform in the world and the ability to manage the new used cases of mobile, that includes not just MDM and mobile security and mobile device management, but application management, app wrapping, content management, email, containerization. And the way these devices are being used.

And secondly, the results of this is the largest employee base of any of the companies focused in this area, at about 1,700 employees where we’ve grown from a 100 to 1,700 people in about 3.5 years. And this gives us the R&D engine to continue to build this product out to meet these changing needs. In the mobile arena, there’s a new mobile operating system every 15 days. We need to keep on top of that pace of change while entering new capability to solve new used cases.

And I think the last bullet on the slide is probably the most important. Our real mission is to make it simple. There’s a great expression that says it takes a lot of technology to create the illusion of simplicity. And if you take a 1,000 or 10,000 employees and tell them to go get their own phone and configure their own email, calendar, contacts, Wi-Fi, VPN, download some apps, download some content, put on some restrictions and secure their devices, none of them are going to do it in the same way. And you’re going to have a very inconsistent deployment.

With AirWatch, we allow anybody to be texted a link, click on the link, put in the pass code hit enter and we come out of the air and do that full configuration of the device. We do a full separation or partition of personal data from corporate data, so that they can be separated and managed differently. And finally, when a device gets lost or stolen or an employee leaves, we can wipe only the enterprise or corporate data without affecting that individual’s personal data.

And the fact that we have then build this with an underlying architecture of automation. So that things like when people get rid of their old device and bring on a new devices as they do every 12 to 18 months in the mobile world that we can ensure that the old device was wiped and that the new device gets properly configured in that easy one-step process, this simplicity is what users really like about our solution.

So moving onto the next slide the AirWatch overview, the solution is broad, these are extremely exciting times in mobile as there’s this merger between the business and the personal used case. And in fact we’re believers that you really can’t separate those used cases. The fact that, people are using their phone to get their boarding pass, it’s becoming their wallet, it’s becoming the key to their front door, it drives their home security system. It is almost irresponsible to think that people want these devices, but don’t want to use them for both business and personal uses and that those both need to be addressed. And as importantly you cannot change the elegance of the user interface and how easy these devices are being used by those consumer used cases, you’ve got to keep it simple, you’ve got to keep it native, but you’ve got to keep it secure. And this drives us to have a very broad platform.

And there’s four real components to this, the first is mobile device management. And this is the ability to configure the device, add security, download apps, image the device, almost think of it as system standard or desktop management for mobile. All that rich configuration ability to image that device to make it secure, working in and out of the API’s provided by the device manufacturers and it’s the basic capabilities.

The second section of this is mobile application management. The development of mobile apps is very different than in the Windows world. In the Windows world, the app developer thought about the application and they could run all of these other security programs in the background, because there was no sandboxing. In the mobile world everything is got to be built into the same sandbox and into the same application and we provide a capability called code injection that allows us to add all of the security to the apps that are built without that security being built into the native code. So that you can get apps from anywhere, do what’s called wrapping or code injection and bring them up to a common security layer. And this adds features and functions like single sign-on, data loss prevention, cut and paste restrictions, geo-sensing, time-sensing and lots of other capabilities for manageability through the MDM console.

Thirdly is mobile content management. Think of this is a very secure box or Dropbox type product, it’s enterprise file, sync and share, where we’ve revolutionized the airline industry by providing all of the pilots for example, virtually all around the world the capability to use a tablet instead of that 35 pounds of manuals, or the pharmaceutical industry where they want to deliver to the sales people the brochures, because they know paper brochures are old, old information creates lawsuits. So this is the ability to deliver information to the user, the exact information they need, keeping it always refreshed and up-to-date.

And then fourth is mobile email management, where we’ve developed our own TIM or email, calendar, contact system. And this would be like the several other products that are on the market today, but for us it is fully integrated into the stack. And the importance here is that we find customers of ours that will say, well we love the native email experience for our U.S. employees and that works great, but we’ve got an international set of employees for example and they are contractors and work for our competitors and we can’t manage those phones. Consequently having an integrated email management capability to do unique capabilities and functionality on unmanaged phones or to be able to do things for the federal government like TAC card or multi-factor authentication or to be able to even turn on and off the email functionality given that there is an interesting court case where the Chicago police department is actually suing the city of Chicago for being able to get into email on evenings and weekends saying we deserve overtime.

And then finally building all of this across a framework of security, scalability, multi-tenancy, privacy and most importantly or at least as importantly telecom expense management, because as people are travelling internationally, bill shock is becoming a huge issue.

If you go to the next slide we talk about the kinds of customers we work with and we’re blessed to be working with largest most scaled and most complicated organizations in the world. The great example is a multi-national beverage distributor, largest beverage distributor in the world and their point will be, we need to set up our security globally because security effects our brand, but we want privacy handled at the local country level because if we end up in front of the work counsel in Germany and we can say that we set up the privacy rules locally, we get a much better outcome then if we say we had to do all of that centrally in the United States.

Fortunately though we’re working for these largest organizations because of this multi-tenancy scalability and a capability called roles based access control, the ability to distribute a lot of the management capabilities locally or within divisions around world.

Finally moving into the next slide you can see that we’ve been very successful with the analysts and here on Slide 18, if you’ll notice AirWatch does show up at the top and the new Gartner Quadrant is in fact just come out and you can find it and I believe it will be posted to the VMware Web site if not immediately after this very soon. And what you’re going to find is that the top players are separating -- the top two players are separating themselves from the rest of the pack. And AirWatch combined with VMware is the only large cap company with a global type of presence that we have that’s being rated at the top of the pack by Gartner but also as all of these analyst firms are reviewing strategic value, vision, breadth of capabilities et cetera.

AirWatch continues to be ranked very well and we have had an overwhelming positive response from our customer base and from the analysts about our combination with VMware and the combination that we’ve got with their end-user computing division being able to broaden our capabilities from the desktop all the way through the tablets, the phones and our strategy moving into even more machine-to-machine. So the ability to provide the broad platform not only across different products and used cases but platforms of mobile has become a very strategic part of our solution.

And with that I want to thank everybody and I think we can now start to open up for questions.

Paul Ziots

Brent we’ll start off the Q&A as co-host of this call.

Brent Thill - UBS

Great. Let’s start with a couple of questions to Sanjay and Alan at VMware on -- number one in mobile the market is exceptionally crowded, Microsoft isn’t out for more aggressive product strategy, Citrix is betting to farm on it, Good and MobileIron just filed for IPOs, everybody seems to have the same product messaging, what really differentiates VMware and AirWatch point of view and why are you positioned to win?

Alan Dabbiere

This is Alan Dabbiere, and I think I’ll take that one given the AirWatch nature of that. We believe that while it is a crowded field it is really starting to narrow down. When you look at Gartner starting to separate the leaders from the secondary players. Mobile takes incredible economy of scale. When I talk about the fact that there is a new mobile operating system every 15 days, it takes a lot of R&D to keep up with that. When you realize there is a billion devices in the world and they need to be managed and the used cases are broadening, it takes a tremendous amount of product footprint. When you realize that companies are integrating this into their eco-system of security and we maintain interfaces and integration to nearly 80 different companies, it takes a tremendous amount of R&D to do that. And then finally the device manufacturers themselves don’t want to work with a large eco-system, partly because of the confidentiality and they are afraid of getting out information of their new product releases.

So they end up working more closely with a handful of leaders than the broad pack. So the good news numbers one is that because of this economy of scale and the horizontal nature of this we believe the rich are getting richer and the poor are getting poorer. Secondly we believe our differentiation is this multi-tenancy single product the fact that we can deliver cloud and on-premise with a single code base, nobody really in the industry is doing that at the breadth of product and scale that we’re doing. So we believe that the complexity of the used cases, the scale that we’ve achieved in terms of our size of company that we’re better positioned than ever and then combining with VMware in that breadth that they have got of end-user computing, the story just keeps getting better.

Brent Thill - UBS

May be for Sanjay…

Sanjay Poonen

Yes, I would just add I think that if you look at the latest Gartner Magic Quadrant as Alan pointed out, it’s really kind of two players now. And the others are start-up. We have just in the mobile area our R&D is bigger than that company’s entire employee base just in mobile. And as you think about the end-user computing space all the way from desktop at Tesla as I joked about, we really got a breath and a depth that I think is going to be the envy of the industry. So with 500,000 customers and 75,000 partners, this product will be on the price list of the VMware. And in Q3 we expect the channel to really adopt it. So when you have an innovative product that’s seen this experience before and my past at SAP and a channel that could adopt this, I think this is going to be a real hit. And it’s our job to continue to take this to every one of the 500,000 customers. And that’s our goal.

Alan Dabbiere

And Sanjay, just one last comment, because it’s so timely, if you look at the two other players that are going public right now, let me start with MobileIron. They are known to have a much more limited product strategy. They are much more about pure MDM, not about the breath of a platform that I described, that includes content management, really Tier 1 app management, email capabilities. They are very focused on trying to be, just sort of the MDM player. Because of that limited resources they’ve got to choose their battles.

Good on the other hand historically is always been an email provider. They really started their life as a replacement to the native email on the device before the devices themselves had email that could be secured and that the devices at API’s and security capabilities inherent in the device. And when you look at a very high percentage of their revenues in their customer base and install base and the way they are been used, they are really a third-party email system. And in that role, we actually have a lot of customers in common with them, where they do the email, but we do all of the other security and management capabilities. So until recently, we have really not even considered good a competitor, even though -- very often a company will choose to do replacement email or MDM. I use the analogy it’s a little bit like I decided by carpets or hardwood floors. But they are really not competing with each other in a classic sense.

Brent Thill - UBS

May be just to follow-on with Sanjay on VMware view what’s considered to be behind the curve versus Citrix XenDesktop. Do you believe today that you’re now at feature parity within desktop and can you just give us a sense of what you’re seeing with rest of the portfolio now, obviously broadening beyond the desktop? How that is impacting your win-rates at the core desktop business?

Sanjay Poonen

Yes, Brent. I think when you took a view, which was primarily in the past focused on VDI it was actually a very good product built within desktop. And the VDI capable is actually VMware was always a pioneer, Gartner came up with the rating last year that compared view to XenDesktop and rated it the best in the last 5.5 release. The piece that we were missing was app delivery. And app publishing and app delivery was something that’s more a XenApp type of capability. And with Horizon 6 not just that we believe, we’ve done this now in a unified product, this should not be two products, XenDesktop, XenApp and sort of a separate way of doing this, this needs to be unified. But then the management of it, the tying it to Virtual SAN being able to handle the physical used case with Mirage and doing it all in the cloud, that was all that we announced in Horizon 6. That is a lead to our capability. So we think we really innovated something that’s a more modern core base.

Our competitors has been doing up for 25 years, we’ve really been newer kid with a more modern innovative solution. And I think that that’s really reflective of itself in the last quarters, as Paul pointed out in the beginning of this call. Our growth was up, it was a 35% in this category compared to our competitor that was flat to negative in this category. And that’s been the pattern for the -- in our several quarters that there’s been flat to negative growth. So we think that in this category you build a better product, customers will come, you enable the channel, they will come in. And that’s what we’re focused on. With not just the product but also now a really rejuvenated team under the leadership of Sumit Dhawan that we’ve added to the organization.

Brent Thill - UBS

And as the product line is, really diversified in -- is maturing, can you talk about the go-to-market strategy in terms of dedicated end-user computing sales teams versus the general salesforce. And how that plays out over the next year?

Sanjay Poonen

Yes. I’d like to cover them in two parts and let Alan comment on the AirWatch part, because they’ve really got a very specialized nice model inside out, like we just saw at salesforce or other companies they’ve got a public like Tableau. So we’ll cover AirWatch in a second. But one of the things that, VMware entered, this was actually in before my joining here nine months ago. Was for the first time in the history of VMware, a specialist sales organization, so not just one salesforce, but an end-user computing salesforce at about the beginning of last year 2013, so as that began to build up for the first time, we actually got focused in different buying center, that didn’t exist. And that’s really important. So we can go and talk to the people like Armand from Stanford to say listen your need on the desktop side is going to be little different from the datacenter side. And now that’s augmented by a really powerful engine that joins us from AirWatch, that’s been focused and it’s actually pretty sizable on the mobile side, so this specialist sales organization.

Now we’ve been careful to do and we will continue to do, is to not over rotate through either desktop or mobile. So we’ve kept these two salesforces fairly separate, there’s obviously incentives and splits to make them, but if you look at the needs of Mark here for example at Stanford he might have a slightly different sort of new answers for mobile that what Armand needs with desktop. So the AirWatch team will sell to him. The desktop team of end-user computing will focus on folks like Armand and we will find ways by which they harmonize because there will be integration between them. So that’s the way in which we feel we organize. I certainly am used to this, because at SAP I ran all of the specialist salesforce. We think specialization is just like a medical institution, you need journalists and a specialist doctor, that’s the way in which we believe our selling organization, can work together. And maybe Alan you can take half a minute to sort of just talk about how AirWatch has specialized itself in being one of the best in the go-to-market perspective at selling mobility.

Alan Dabbiere

Great, well thank you. Well first, what we’re in is a huge horizontal market, so when you realize the opportunity, it’s tremendous in mobile. There is a billion devices or maybe more in the world today obviously increasingly rapidly more than half touch the enterprise. We are acquiring more than a 1,000 customers a quarter, so we’ve got this really down. And we’ve got a strategy that bring in partners and of course VMware is a larger partner team is going to be a fantastic boost for us, but then in our salesforce directly we’ve got a great enterprise sales team that can go out and either independently win or work through and with our partner is very directly to win these large enterprise accounts, but we also have a inside sales team that can really keep what I will call the $2 window humming where we’ve got all of this midsize and small enterprises adopting AirWatch very-very quickly.

So the fact that our enterprise and inside sales teams are working so effectively with our partners, we’re getting huge leverage. And then once we get into a company or more when I say across the market, our growth is happening quickly because it’s going in so many different directions. Number one the fact that 80% of our customers are in our SaaS posted environment and they’re renewing, we get so much recurring revenue so that every quarter or when we start where we are new in an awful lot, but then the strategy of signing up more customers and then internally we’re getting more users per customer as they continue to adopt. Our customers are having more devises per user as the used cases and the idea of having the phone and the tablet and even watches and glasses and other devices. And then finally we’re selling more products into our customers as we expand our product footprint into areas like mobile content management and email and app wrapping, we’re seeing tremendous uptake of across our product line. So we’re growing in many directions it is really accelerating our success.

Brent Thill - UBS

Great, thanks. Shifting to Armand and Mark are both VMware customers from Stanford University, Armand and Mark thanks again for offering your perspective, it adds a lot of insight for a number of us on the call, can you just start with providing your overview of your role at Stanford?

Armand Capote

Sure, good morning this is Armand Capote. I’d like to thank VMware for inviting us to share our end-user computing experiences on this call. As Director for Infrastructure Operations for Stanford University, my responsibilities include managing server, storage and desktop technologies for Stanford’s Administrative Systems. We implement the IT solutions that run the business of Stanford University primarily tier 1 applications like ERP, financials, HR, payroll, enterprise reporting, study administration and research administration. Mark?

Mark Mellis

So, I am an Information Security Officer and the roles I play are in security architecture. I am also the business owner for security related IT projects. And I do the normal things like doing security assessments and incident response and consulting with the end-user community on 3D issues.

Brent Thill - UBS

Maybe starting with Armand, can you mention what VMware technologies you work with and how many desktops do you manage? And then for Mark, could you just give us a sense of on the mobile devices what you have under management and a little bit of the decision behind choosing VMware over what looks to for many outsiders as a pretty crowded field?

Armand Capote

Sure, in the Stanford University IT, we used VMware server and desktop virtualization technologies namely vSphere, and Horizon View as well as the associated management tools like vCenter and vCenter Operations Manager. So within Administrative Systems IT, this includes roughly 800 virtual servers and 700 virtual desktops right now.

Mark Mellis

So, of course, I use VMware Fusion on my personal machine and I also recommend the services and using a security solutions that Armand supports, but my main focus is as you mentioned AirWatch MDM product and we currently have across the University the SLAC National Accelerator Laboratory that we manage for the Department of Energy and our two hospitals, Stanford Hospital and Clinics and Stanford Children’s Health, which includes the Lucile Packard Children’s Hospital. We currently have upwards of 14,000 users and we’re looking at 22,000 for the end of the year, that’s devices being managed I should say.

Brent Thill - UBS

And Mark just maybe a follow-up on that in terms of the total number of users eventually that you could see this role obviously not necessarily this year but do you envision that everyone can be a candidate or is there a certain sub-factor at the customer base that would apply to you?

Mark Mellis

No, we really think that that MDM is for every device on campus and we’ve always taken that approach on the university side, the hospitals may have a slightly different perspective, but we depend on AirWatch to help us configure the devices and offload the support organizations so is not merely a security tool. It’s also a configuration management tool, it provides intelligence as to what our users are doing with their devices, there’s a lot of benefits that we get from it. So to turn that into a number for you, we’ve got a community of about 48,000 people on campus. They have about on an average 1.5 devices being managed per person, in our current user base and it wouldn’t surprise me if we got 75% of those 48,000 people by five years out.

Brent Thill - UBS

Okay. That's very helpful. Maybe just to follow-on to you Mark, when you look at all the different vendors and I know you’ve been able to kind of look underneath the hood and speak to you, each of the individual vendors, what really set VMware apart as the leader, and maybe if you could just share a little perspective, if you could on each of the vendors or maybe the one vendor that kind of came in as a runner-up, and what really separated, again the decision here?

Mark Mellis

Sure. Well we started out actually in 2010 building our own MDM for iOS devices only. And we did that because at that point in time we weren’t satisfied with any of the vendor offerings, then we re-evaluated in early 2011 when we could see that things were working better but we stayed with our own solution for awhile. We knew all along that we’re going to move to a commercial offering because frankly we’re not in the software development business. We’re in the education business or the research business. And we are looking for support for additional platforms, as I mentioned early, our self-built project was for iOS only. And so we wanted to pickup android. There is a big demand for that. And there are other features that we just needed to have to be able to address more used cases than we could do with our own product.

So we started looking at the various vendors and we looked at the product that was acquired by Xen mobile, yes, then price. We looked at the product. They couldn’t help us. We looked at MobileIron it didn’t meet our needs. One of the hospitals was using Good, and the user community sort of rejected it because it was imposing a different user interface on them. They bought iPhones because they wanted the Apple user interface and the Apple end-user experience, and they just didn’t get that from Good. So ultimately we ended up with AirWatch and the key differentiator for us for AirWatch was their multi-tendency or as I refer it to, it’s a federated management system.

And the key there are wars that we have -- the hospitals and the National lab, they are all independent organizations. But we work very closely together I mean obviously we’re all under the same Stanford name. And we had to have a solution that would give each organization the ability to manage their own devices, the way that they had to, to get their mission done. But at the same time it will allow us to be able to look at the devices that were registered in the other organization and trust them. And AirWatch’s multi-tenancy solution had the right feature set to allow us to do that. And we discovered that that was critical to making the decision to go with AirWatch.

Brent Thill - UBS

Okay, last question from me, and then we will open up to everyone on the call via the line or you can email either Anthony or myself. But Armand just maybe a two part, when you look at VCR the core, you know, historic product of VMware, can you just give some sense of how penetrated these VCR is inside of Stanford on the server side and where you see that evolving and then secondarily, just on the desktop side, you’re the value across desktops, can you walk through that and perhaps maybe also give us a sense of the evaluation of who you looked at and again it seems like we are coming back to a common theme here but just curious to get your view on that as well.

Armand Capote

Sure. I think I mean I think in general the penetration of VCR, is fairly widespread. I mean we see it as a key technology for us that we essentially have offered it to the entire campus as a way to help them to manage their IT resources. I mean virtualization has revolutionized how we do IT at Stanford, the efficiency it has been able to gain, in terms of hardware utilization, flexibility in system, provision and maintenance, has really allowed us to continually do more for our clients at a lower cost in less time. When it came to desktop virtualization, it’s a little different story there for us, I mean we evolved from a primarily a datacenter ESX a VCR centric organization, that wanted, that has evolved into desktop virtualization somewhat much like a VMware in some ways.

So our initial primary driver for going to desktop virtualization was security. We wanted to keep sensitive data in our datacenter and not have it end up on laptops or other devices that could be easily lost of compromised, and I am sure Mark can join in on that as well. At the same time we wanted to provide users with a familiar and fully functional desktop environment. VMware View has always provided that from the very get go, I mean we were impressed with the ability to essentially not lose functionality in the way to virtual desktop environment and all these performance and keep our users productive.

We did perform at the time, we actually had Citrix in-house at the time primarily on the XenApp side, not so much on the XenDesktop side but we did do a quick shootout of the two technologies on the desktop virtualization things. And we pretty quickly settled on View in large part because to be honest we were able to leverage the same VMware virtualization technologies that we had standardized on, same tools and processes and getting many of the same benefits for the desktop that we had previously realized on the server side.

While security alone I would say has made the move to virtual desktops successful but in addition to security we have seen a substantial productivity gains both on the IT and end-users alike, on the IT side as I mentioned we’re able to provision and manage this as a much more efficiently and securely and on the users side what we’ve seen that, an added benefit that they didn’t really see coming into this is that they have and always on desktop that they can securely connect to from just about anywhere from almost any client platform. So that’s really proved to be a win-win both on the IT from a management perspective and on the end-users productivity gain perspective.

Brent Thill - UBS

Great, operator let’s go to Q&A.

Question-and-Answer Session

Operator

Thank you…

Alan Dabbiere

Brenda before we start would you please remind folks on how to ask questions, I know we have some in the queue but it will be helpful at this point for a reminder.

Operator

Thank you. (Operator Instructions) Our first question from Rick Sherlund, Nomura. Your line is open.

Rick Sherlund - Nomura Securities

Hey, thanks so much. I am wondering if you could talk a little bit about what we might expect from the operating system vendors themselves. It sounds like we’re going to see some of these capabilities Google just bought Divide. Whether we’re going to -- it sounds like Google might fork Android and deliver more of an enterprise version versus a consumer version delivering some more of these management capabilities, and Microsoft approach initially have much of a presence in mobile and Apple perhaps moving in the same direction. And how you think that might impact the market?

Sanjay Poonen

Yes let me start to Alan, and then I’ll have you to sign in I think one of the benefits you have seen of VMware in general, if you look at just the solo virtualization, we’ve always been, our view has been neutral or sort of this heterogeneous Switzerland player irrespective of operating system, that’s been our foundation our premise. And one quite frankly our value proposition the more heterogeneous the better. And that actually desktop world was maybe in the past 90% Windows, 10% Mac. Of course we think there is little bit more Mac now starting to show in the enterprise.

In the mobile world it’s fairly fragmented, if anything that’s sort of iOS, Android first and second may be Windows third. So as many of these operating systems start maturing and offering not just consumer capabilities but enterprise capabilities, they are not all the same. So there is going to have to be some security and management and we were clear that certain mobile device management is table stakes, but we call this category enterprise mobile management and security when Mark introduced his role, he is information security. So there is going to be a wide range of both management and security problems that need to be solved on top of iOS on top of Android and top of Windows with all of that differences.

And we’re uniquely we are actually positioned relative to any of those vendors to actually work across them. Okay and typically when you talk to a CIO or CPO they say listen we’re not going to probably rely on an enterprise mobile management and security solution from one of the device operating system vendors to manage the other companies device operating system, we want a neutral heterogeneous Switzerland type player, and that’s our value proposition. That said we work very closely with Apple as you think about the worldwide developers conference of what they’re announcing with Google and what they may be getting ready to announce at Google IO and even with Microsoft and some of things that they have got not just in the Windows place where we’ve worked with them in the Horizon 6 launch to leverage their platform but also in the mobile area. So this is the value proposes that we will continue whether it’s with VMware’s end-user computing desktop products or any of the AirWatch mobile products.

Alan Dabbiere

So this is Alan, if I could just add number one Sanjay I agree 100% the neutral is so important. Number two, we believe that this acquisition of Divide is a really big move and I think it’s a real Google the feeling getting pressure that they’re not accommodating for the enterprise. Now I don’t think it’s going to be as much as a fork in the road as it is a single operating system that can have more enterprise capabilities turned on or enabled through MDM or other capabilities. So not unlike what Samsung has done with KNOX, where its built into the operating system but you may or may not turn it on whether it’s a homemaker, or a personal used case strictly or whether family used case or whether it’s enterprise.

And so what we’re finding is that the diversity is still wildly out there we think that Divide is going to consolidate a little bit of the security under the Android side, but now you’ve got Samsung delivering a Tizen device in certain parts of the world. So finally, what we’re seeing is that the security is really being brought across a lot of different layers, because you also have Intel putting a certain amount of containerization and security at the chipset level. We know Qualcomm is doing that all of the chip manufactures are looking at some of these capabilities at the chipset layer, you’ve got them at the operating system layer, you’ve got them at the application layer through app wrapping, some of the things we do it, you can’t do it with those other layers. You’re going to have network layers of security with the carriers, putting in VPN’s or more intrusion checking because there are certain virus things that you can’t do it at the device level because of battery life, so there’s things that you are going to want to do in security at the network layer where you can do that more efficiently. So net-net as we think it becomes a bit of a more complicated world, but a safer world because of all these layers that are being introduced but it doesn’t reduce the value of MDM and Enterprise Mobility Management it continues to enhance the ability to have a single broad product managing across all of that eco-system.

Rick Sherlund - Nomura Securities

Thank you.

Paul Ziots

Let’s go to the next question on the phone please.

Operator

Kash Rangan, Merrill Lynch. Your line is open.

Kash Rangan - Merrill Lynch

Hi, thank you very much. Thank you Brent buddy for doing this. And the question goes to the gentlemen from Stanford. What are your perspectives on running desktop virtualization as a cloud-based service in a public cloud like Amazon web services? And how do you weigh the pros and cons of running the public cloud versus doing it internally. And also as you take a step back, how does VMware’s management tools touches the vCloud suite help you with your desktop virtualization initiatives? Thank you very much.

Armand Capote

Great question, I mean that’s something we’re very actively working on. From our perspective we see the migration to the cloud as just as a natural progression of what we offer our clients from an IT portfolio perspective. So that’s the decision whether we host something internally and move it to the cloud and the ability to look at the business drivers what’s the data that’s contained is it something that absolutely must stay on-premise, where we need to know exactly where those bits are sitting, or is it something that can be deployed on a cloud, external cloud or environment. So the ability for us to be able to provide both those solutions to our clients in a seamless manner, where they don’t really have to worry about, whether it’s coming from Amazon or whether it’s coming from Stanford’s datacenter it’s key to us.

At the same time from, as an IT Manager I need to worry about how effectively can I manage those two worlds, do I have to learn a whole new set of protocols and operating procedures and whole new say different set of tools for depending on whether I am working on Amazon or working in my local environment and one of the key things that we’re looking for and currently, VMware is most likely did in migrating from datacenter virtualization to desktop virtualization internally in our own datacenter being able to leverage the same tools, is now being able to again, take those same tools and like the cloud suite and being able to leverage those to manage our environment across internal cloud and external cloud.

Again, also when it comes to, going to like a third -party hosting environment, there again you want to be able to look out, okay so what’s the used case, what is the costs versus that you’re running in internally versus the concerns of security and that go outside or not. So those are things we’re comfortably looking at. And I think being able to leverage the same set of management tools is a great enhancement for us and something we look to leverage going forward.

Paul Ziots

Great. Thank you, Armand. Thank you, Kash for the question. Let’s do one more on the telephone and then we will go to email questions. So the next telephone question please.

Operator

Next question from Michael Turits, Raymond James. Your line is open.

Michael Turits - Raymond James

Hey, for you guys at Stanford I don’t know if you covered this or not, but what are you doing in terms of the mobile application management, are you wrapping specific application, have you created any kind of app store using AirWatch?

Armand Capote

Yes. We do have an app store we are not currently doing app wrapping although we’re looking at that as solutions for some particular used cases. And it’s a big growth area for us as we want to control the availability of particular applications to particular user communities there’s a lot of flexibility in the way that AirWatch allows us to do that with smart groups. And the direct re-service integrations and stuff that we’re looking forward to taking advantage of.

Michael Turits - Raymond James

And would you ever use their -- an SDK to actually build specific apps for AirWatch or it would be through app wrapping?

Armand Capote

No, we’re absolutely interested in the SDK, one of the things that I do in the group is try to motivate people to use that because, when you build the SDK into an application it gives you additional management capabilities that, I think you can get from app wrapping but you can get a tighter integration if you use the SDK. And we do have handful of local applications and I want to get our SDK or the AirWatch SDK integrated with those.

Sanjay Poonen

And this is Sanjay one of the things that’s really one of things we’ve loved about AirWatch is we go to the customer conferences and see this, the connect conference in September in Atlanta. They have a broad ecosystem. They have invested in SDK that ecosystem is going to even get broader. A number of application providers the ISBs and so on that can take their SDK wrap particular parts of it and maybe its content management may be that’s specialized applications and this was actually one of the things that attracted us. Last year, this time around August, September we went to their customer conference as we were doing due diligence and really found an ecosystem that was one of the largest in the industry. So we’re going to continue to flourish that ecosystem so that customers like Mark are able to use the SDK to drive the types of innovation they need as a platform, there are difference within tools and a platform gives the ability to use things like SDK.

Michael Turits - Raymond James

You know, Sanjay along those lines another key factor for AirWatch was the use of their APIs because we would not be able to integrate it into our business without those APIs, they’re critical?

Sanjay Poonen

That’s what Alan called depth by a 1,000 of cuts, you just to have the number of different places where you’ve got dot eye across very VP.

Michael Turits - Raymond James

The last question on the subject was you’ve talked about 75% target penetration of your users for MDM in general, but you say what would be for the NAM portion of it and then after wrapping et cetera?

Sanjay Poonen

I see that is actually being more focused on employees than students. People who have employer-employee relationship because we’re more interested in the security aspects of our employees because they have more access to the sensitive information. For students, we use the product more for its management capabilities.

Paul Ziots

Thank you, Michael. Let’s check with Brent on any email questions, Brent, FYI Anthony has a few we’re getting little short on time, but let’s start with you Brent, if you have an email question or two and see where we stand after couple of four minutes?

Brent Thill - UBS

Yes, absently. One for me and this is directives report, Stanford. You guys clearly believe in the platform vision, can you just help us understand with all these different components licensing how the pricing model for you involved, are you on in ELA, you envisioned kind of going to all you can need dream for all the products at VMware house, can you just give us a sense of that evolution where you at on pricing?

Armand Capote

Sure this is Armand Capote from Stanford. So about three year ago, we entered into ELA with VMware primarily focused on the datacenter products and vSphere in particular. I mean at the time across the University there was already widespread adoption of that technology as we saw that as something that we want to make easy for our IT users at the University to leverage. Three years later we’re now back to table with the VMware and we’re kind of looking at okay so what’s next. We need to look at other platform. One of the things we’re looking at right now is on the Horizon view side. Originally, it was just us that we wanted to do virtual desktops within administrative IT to provide a secure solution there.

But that used cases are expanding, they’re expanding outside of IT into the academic side and to potentially classrooms scenarios. So there is a lot more upside in terms of demand, so again for us we want to make it easier for our clients to use the technologies and not have instead of 15 to 20 different departments working with VMware and trying to figure out how make that happen. At Stanford, we’re trying to provide a centralized way to broker those services and having work with this on coming with the right license and the right set of feature that they need to do their business and we in central IT partner with somebody like VMware to provide that.

Paul Ziots

Right, thank you, Brent, Anthony let’s just take one question from your email list since we’re at the end of the time and we’ll conclude after that.

Anthony Luscri

Yes, so this question is directed to VMware, can you talk about how you expect any great mobile management with fixed endpoint or PC management all the time?

Armand Capote

I think that’s a really good point, which really separates us from just mobile only players. Like I described, our vision is to have the sort of single painted glass that goes from desktop to laptop to tablet to phone to Tesla your favorite car, right. So as you think about just a mobile category tablet or phone or machine, you really have to away by which you can virtualized mange and secure a laptop and a desktop because a number of customers want that secure container. So when Mark talked about one of his favorite products Infusion it’s actually one of those little known brand it’s probably the most popular brand of the VMware on Stanford University campus because most students use it. You can expect us to see a lot more coming from that type of secured container solution that extends what you’ve seen on the mobile console management just simple easy to use, something that’s very mobile centric and that’s the type of benefit we think our customers want.

Paul Ziots

And Sanjay I know before we concluded you wanted to make a couple of comments.

Sanjay Poonen

No, I just want to close by thanking our customers. As a master student from Stanford, it just gives me great pleasure to obviously have you guys here. I know it wasn’t a long commute but it’s a great way. I went to school at Stanford in 90s. This is well before the smartphone generation, but I can’t just think how exciting must be for students to be there in the University, so I want to thank Armand and Mark for being here. It’s a tremendous honor to have you with us on this call. And thank you obviously Brent and Alan for also the great time this hour. Paul?

Paul Ziots

And say better myself. Thank you, Sanjay, with that the call is concluded. If there any additional questions, please contact the IR department, thank you for your time today. Have a great day.

Operator

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 (VMW) Hosts "What's New at VMware" Conference Call Series (Transcript)
This Transcript
All Transcripts