VMware (VMW), the leading desktop virtualization company, is set to announce its Q2 earnings on July 23. Revenues in Q1 grew 25% to $1.06 billion on a yearly basis, but were down by about half a percent on a quarterly basis as Q1 has traditionally been a slow quarter for VMware. The management had raised its outlook for 2012 expecting virtualization and cloud computing to drive growth. We expect mobile desktop virtualization, bring your own device (BYOD), Big Data analytics, and enterprise social networking will be the main revenue drivers for Q2 and the subsequent quarters.
The BYOD Opportunity
VMware leads the BYOD revolution with its View Mobile Secure Desktop offering, which provides a safe and secure environment for mobile virtualization. The product addresses security and storage of virtual desktop networks by providing secure snapshots of the desktop that can be monitored and controlled by IT. It also addresses storage issues by adopting a hybrid storage combining Flash and legacy storage to provide speed as well as cost efficiency. The VMware View Mobile Secure Desktop is a fully validated design that provides its users access to their employers' networks, applications and data, irrespective of the device and data network.
The Enterprise Social Network Opportunity
Enterprise networks are of two types: The Intranet, or an internal social network for use by employees, and an enterprise network for customer service, which doubles up as a platform for companies to engage customers via social networks. The social Intranet is used for collaboration on projects and leading in this space is Salesforce.com (CRM) with its Chatter service.
VMware is primarily a virtualization company and this division accounts for 90% of its current Trefis price estimate. It is looking to move into the enterprise social networking space with its latest offering, Socialcast. Though this division does not contribute significantly to the company revenues currently, it is a big opportunity for VMware.
If Jive, which reported an annual revenue of ~$80 million in 2011, is used as a benchmark, enterprise social network can become a major source of revenue for VMware, going forward as it can leverage its institutional client network to cross sell Socialcast. The company is also moving into mobile phone virtualization and can provide a mobile social network easily.
The Big Data Analytics Opportunity
VMware recently acquired Cetas, a Big Data analytics company. The Cetas software is designed to run on virtual resources like Amazon Web Services and VMware’s vSphere, making it easier to scale and cheaper to use. This acquisition makes sense for VMware as its applications that are deployed on the vSphere provide another opportunity to cross-sell. This cost efficiency and an analytics-as-a-service model will open up the market for small and medium enterprises, satisfying an unmet need in the analytics space.
We have a $109 Trefis price estimate for VMware, which is ~35% above the current market price.
Disclosure: No positions.