VMware, Inc. (VMW) Management Presents at Stifel 2020 Cross Sector Insight Virtual Conference (Transcript)

VMware, Inc. (NYSE:VMW) Stifel 2020 Cross Sector Insight Virtual Conference June 9, 2020 12:00 PM ET

Company Participants

Rajiv Ramaswami - Chief Operating Officer

Conference Call Participants

Brad Reback - Stifel

Brad Reback

This is Brad Reback with the software research team here at Stifel. Thank you all for joining us. Today, we have with us Rajiv Ramaswami, COO of Products and Cloud Services from VMware. I was just telling Rajiv -- I was thanking him for joining our efforts. Again, I think this is the third year in a row he's participated. So thank you very much, Rajiv.

Rajiv Ramaswami

Glad to be here, Brad and good afternoon, everybody.

Brad Reback

And let me start with the obligatory forward-looking statement. I'll read that out then we can jump into Q&A. And for anyone on the call, who may not have access to our web link, if you have any questions that you'd like me to ask, please e-mail them directly to me at Reback -- R-E-B-A-C-K -- B as in boy @stifel.com.

So the forward-looking statements. Statements made in these discussions, which are not statements of historical fact are forward-looking statements based upon current expectations. Actual results could differ materially from those projected due to a number of factors, including those referenced in VMware's most recent SEC filings on Form 10-Q, 10-K and 8-K.

Question-and-Answer Session

Q - Brad Reback

Rajiv, maybe high-level question. You joined VMware a little over four years ago from Broadcom. If you think about back to then, what attracted you to the company and made you decide to make the switch? And then how has that evolved over the last four years? And really, what leaves you most excited or what makes you most excited about VMware today?

Rajiv Ramaswami

Yes. So when I joined about four years ago the attraction for me was look VMware had been a very well-established company in server virtualization. I look at it in the first innings of the journey and very well-established. And there were questions around what were the second innings going to be around? And we were in the early phases back then of building out the networking portfolio, building our virtual SAN, vSAN and of course, end-user computing was just coming on board.

And I looked at this from the outside coming in and saw boy, this is great opportunity to establish franchises in multiple new markets and drive growth. And also the world is moving more and more towards software, whether it be everything to do with the data center. And so looked at that and that's what drew me here. And of course coupled with the fact that I knew a lot of people here the team was a great team and culture was good.

And so -- we were going through that period of uncertainty about the future of VMware. At that time, there was also uncertainty around what is the cloud going to do to VMware. And so all of this, I look at this as opportunity.

And indeed if you look at what we've done over the last four years, we've established fairly strong businesses in networking in vSAN in end-user computing, which of course is benefiting even more now. And we established a fairly clear-cut strategy in the cloud both in terms of our hybrid cloud offerings as well as in the more native public cloud facing stuff.

And then the next thing that we did also was containers and focusing on modern applications. So I feel like we've really established these businesses for the second inning, which is now healthy and growing. And we are well-positioned for the next set of things that we're doing for the next 5 years to 10 years here right? And that's around these big five franchises that we've established right now. The multi-cloud franchise which is of course are big bread and butter piece of it coupled now more with application modernization, networking security and of course end-user computing or digital workspace.

Brad Reback

Excellent. And maybe if we, sort of, we'll go through all those five pillars over the course of the 30 minutes. But maybe start with the ones that's front and center right is end-user compute. I'll say broadly Rajiv as we move from I'll call it, work-from-home to work from anywhere how do you see that broader trend playing out and the sustainable changes that come out of this work-from-home experiment?

Rajiv Ramaswami

Yes. I think we are now beyond an experiment here, Brad. I think this is going to be a new normal and new reality. We are fundamentally, I think, in a world where the workforce will be distributed and it will be more distributed than we were pre-COVID, even after things return to normalcy.

And because people are realizing that, we can get our work done, we can get it done fairly effectively with the tools that we have today. And I think this is, and actually, I would even say in many cases, we might argue that people are being more productive and more efficient with their time.

So when it comes to the end-user computing business here, as you know, we already have a fairly comprehensive digital workspace portfolio. That includes identity, it includes virtual desktops, it includes device management across a range of platforms combined also now with endpoint security with our Carbon Black piece and also some work we've been doing in the workspace portfolio itself.

And the focus here is really around providing employees, right, our customers with best-in-class employee experience and engagement, right? At the end of the day, we all know that better employee experience translates into better engagement, which translates into better business results. So with what's going on around that we clearly see a tailwind for our EUC business, and the distributed workforce definitely means more for digital workspace it favors it.

So in the short-term in terms of what you saw last quarter, we play a critical role in enabling these organizations to respond to this COVID crisis, both new and existing customers were able to use our end-user computing solutions for business continuity plans. For example, anybody who had worked with desk operations, many of them decided to scale it out in a significant way. And that last quarter resulted in like a 40% growth in our on-prem VDI business.

So now looking forward, we are still fundamentally focused around the major use cases, which is employee engagement, modern management of Windows, especially being a big opportunity for us, right, in addition to the management we've been doing traditionally on iOS and Android devices. Virtual desktops will continue to be important and continue to be scaling out. And the last bit is security.

So those four use cases are here to stay for the next several years and will continue to grow.

Brad Reback

And if you think about this modern stack or modern EUC stack, is it predominantly greenfield opportunity? Or are you displacing legacy vendors?

Rajiv Ramaswami

The answer is both in these scenarios. So, for example, when you look at virtual desktops, there's obviously existing vendors there. And in the past even pre-COVID, we were about to continue to drive our market share up with the vision that we have.

And then in terms of the overall workplace solution, I think, we created a market-leading offering here with our digital workspace well we call it Workspace ONE, which really integrates all of these functions together into a single offering. And increasingly by the way that's cloud delivered. And so there is a lot of greenfield out there, right?

There's -- I mean, you look at the millions and millions of devices that are out there still uncaptured for us to go after. So I think that's a clear, I think, clear opportunity for us to drive our footprint in advance to tens of millions of devices that are still sitting in the enterprise still largely unmanaged.

Brad Reback

And if you think about your EUC suite, are there areas that you'd like to continue to build up, be it organically or inorganically? Or are you pretty happy with the completeness of the platform today?

Rajiv Ramaswami

Our platform is largely complete. We've done some small tuck-ins in last year. We acquired a company called AetherPal, a small company that, for example, that allows us to troubleshoot remote devices, right? When you have a device and you need to be troubleshooting remotely, we can do that now. So it's more kind of those, kind of tuck-ins and add-ons to the platform per se that we are looking at.

We have now, obviously, with Carbon Black now part of our portfolio, we are looking at integrating and bringing together device management, end user device management and security together into an integrated offering and change the category, right, expand the category for us.

So, we will continue to drive integrations across the rest of the portfolio, including, for example, Workspace ONE with networking and security controls, right, from a networking portfolio and then Workspace ONE and endpoint security. So, those are the kind of integrations we will drive. We will continue to look for tuck-ins as they make sense.

Brad Reback

Got it. And you had alluded to earlier, Workspace ONE is accelerating sort of or increasingly cloud delivered. Is that cloud agnostic or is that predominantly AWS at this point?

Rajiv Ramaswami

Yeah. I mean, it almost doesn't matter to the customer, because it's only the management plane. The devices are the devices, right? So there's an agent running all those devices. We just happen to manage that from the cloud, and it doesn't really matter which cloud we run it on. Yes. Today, we run it on AWS, but even for us, we can run that management plane anywhere, right?

There's no particular constraint on picking a particular cloud provider. Think of it more like a SaaS offering, right? We have the control and management plane are sitting in the cloud, run by us as a service managing the devices that are with the customers and employees.

Brad Reback

Great. Okay. And as it relates to the cloud, maybe you can walk us through the evolution thus far of your relationship with AWS? And then beyond that, the newer relationships with the likes of Azure, GCP, et cetera?

Rajiv Ramaswami

Yeah. So AWS continues to be our oldest and most preferred relationship, and we have a somewhat unique relationship with AWS. That's the only place where we have jointly developed and offer a VMware-run service. So, we are operating the service with -- the right using a data center, AWS servers in all the AWS zones, but it's a VMware-delivered service.

If you look at the last couple of quarters, we are very pleased with the bookings performance there. We had a very good quarter this year in terms of the VMware Cloud and AWS bookings.

Now, we also have AWS reselling that offer right now. We also are now in GovCloud, which is an incremental opportunity to go tackle the federal space, and we are going through our FedRAMP certifications, so that we can now fully sell into the entire federal market.

The consuming host continue to go up and a lot of global brands on the platform today. IHS, for example, was one public customer that we talked about this quarter with a very large deal, right? We call it an eight-figure deal.

Now, as you look at the other cloud providers, at this point, we have now offerings with every one of them, pretty much all the ones that matter. So, obviously, after AWS, the next one would be Azure. And Microsoft is now aggressively building up these, what they call Azure VMware Solutions. The relationship is slightly different in the sense that we provide Microsoft our software stack VMware Cloud Foundation. They take the VMware Cloud Foundation and offer it as a service and they call the Azure VMware Solutions. And they've now announced that in the first-party solution that they are now building and delivering. And there's a significant pipeline there and customer traction with major brands with that offering.

Then Google, we announced the Google Cloud VMware Engine. That relationship is also similar to the Azure relationship where we provide the VMware Cloud Foundation stack and then Google then offers it. If you recall, Google acquired a company called CloudSimple sometime ago that was already a partner of VMware and they've used them to go actually build and deliver that service. So there is an early access program at this point with Google.

AliCloud, Alibaba also has an offering at this point. And so -- and of course in the past, we've already had IBM for many years now also having a VMware Cloud Foundation based offering. So at this point, we feel pretty good about having delivered in terms of enabling a VMware solution in all the major public clouds out there. The AWS relationship is the most mature, the most preferred and we have the most experience because it's been out there for two years plus at this point. And it takes some time to mature these offerings. We are in the earlier stages with these other major cloud providers as their offerings are really just hitting the market right now. And so we expect to go through the same phase of maturing the offering and growing it making it globally available over the next period here

Brad Reback

Understood. And for the Azure, GCP, AliCloud relationship, we don't need specifics, but from an economic standpoint, are they getting -- are they paying you based on customer consumption or do they make it upfront commit and then get to resell that over time?

Rajiv Ramaswami

Yes. I mean typically, the notion here is around similar -- all the cloud providers around, you can go pay on a monthly basis, you can go to a one-year reserved instance, you can go to a three years reserved instance. And it's a mix of all of those, right? And it ends being like a combination that most of the larger customers will opt for buying reserve instances for a portion of their capacity that they need, which means they'll pay to three years upfront. Okay? And then they will use burst capacity as they need, right? So some portion of it will be on-demand. And the rest of it is usually something that they will sign up for on a more longer-term basis, and at least for the ones that are serious consumers. Now if you're going to try things out and maybe you're just bringing a couple of hosts in, you might try those on-demand first and that might be the landing strategy. And then as you start deploying more and more, you get into the expansion phase, where you are making a longer time horizon commit.

Brad Reback

Got it. And in VMC, the VMware Cloud product inside of AWS, as you mentioned, it's been in market sort of two years. And I know Pat on the earnings call talked about a two-year maturation process. For the customers that have been on it the longest, have you seen an evolution in where they started to the type -- with the workloads they started with to the types of workloads they're using in there today?

Rajiv Ramaswami

I think for most of them, they started out with one of these couple of use cases, right? The first use case was around migration to the cloud. And you're getting maybe out of some of the data centers that they had in migrating their workloads to the cloud. And that largely still continues to be a big use case, and that's focused on the fact that we can enable their existing applications, a range of existing applications. Whatever they have running on a VMware platform today, can largely be migrated into a cloud without any significant refactoring. And so that continues to be a predominant use case.

Another use case is around disaster recovery, which is really around the ability to go -- you have your workloads running on-prem. When there's a failure, you're able to recover those workloads in the cloud and you pay for the capacity as you need versus having to have it sit around idle.

The third use case is around temporary or elastic capacity expansion. You just want to expand and build more capacity. You don't want to do that in your data center, but you want to do it, it's much easier in the cloud. So these three use cases apply to a large set of enterprise workloads that run on a VMware infrastructure today.

Now, going forward, I think the other big opportunity that we have is to also capture net new workloads with new modern applications. And this is part of the Tanzu portfolio. So, the Tanzu portfolio really integrated now with vSphere and with VMware Cloud Foundation is also going to become available on all the public cloud offerings that we have. And so, now with that now, people who are building net new modern apps can also have those land -- Kubernetes applications land on this infrastructure.

Brad Reback

Understood. And you mentioned Tanzu. Maybe for investors and even myself to some extent candidly, what's exactly in that platform? What are customers predominantly? What are you focused on selling them? And is there a different monetization sort of cadence there versus the traditional core vSphere product?

Rajiv Ramaswami

Yes. So, just to give a little bit of a recap on the history here we bought Pivotal and we've now integrated Pivotal with some of the offering that we had ourselves. We had a Kubernetes service. We had bought this company Heptio, a couple of inventors of Kubernetes in that as the leaders of that portfolio. And now, we've integrated this to focus the portfolio entirely on Kubernetes.

And when I look at the different components of the portfolio, there's a build portion of this. The build used to be called Pivotal Application Services. Now it's called Tanzu Application Services. And the big change there is we are now refactoring the back end of Tanzu Application Services to be on Kubernetes and we just announced the beta for that last quarter. So that's the -- for the folks who are building modern applications, they would be consumers of this Tanzu Application Service.

There is also now for the people now to run and manage this portfolio. So, for running the portfolio, we have a Kubernetes runtime. We call it Tanzu Kubernetes Grid. And Tanzu Kubernetes Grid is available as a stand-alone offer, but it is also built into the latest version of vSphere. So, for all our vSphere customers, if they upgrade to the latest version of vSphere, they can get Kubernetes runtime built-in. It's a pretty big installed base that we can go after and get them all to move to Kubernetes over time. And so that's a runtime, the Tanzu Kubernetes Grid. It's available not just on vSphere, but on any cloud of your choice, okay?

Then, when it comes to management there's two components. One is Tanzu Mission Control, which really is all about managing Kubernetes clusters across multiple environments, across a public cloud, native public cloud, Kubernetes cluster as well as on-prem with current clusters perhaps running on vSphere, right? We really look at that as a Kubernetes management layer. We also have Tanzu observability, which by the way, previously was called, Wavefront.

And that allows customers to monitor how their applications are doing. So that's a complete portfolio today. So we are able to now, from a monetization perspective, we're monetizing these things, separately stand-alone, of course. But also increasingly as part of the overall cloud foundation stack, right?

When we now have VMware Cloud Foundation, it includes Tanzu. And going forward, we will have much more of what I would call a volume-type offering, where just people buying vSphere can have an option of buying vSphere with Tanzu built-in. So that's the entire portfolio. And that's the -- and that's -- these are the different ways we monetize it as well.

Brad Reback

And who's the target customer here? Is this a CIO who then pushes it down to the organization? Or is it more on the developer level, trying to get them to pull it through the organization?

Rajiv Ramaswami

Yeah. So there are actually three -- three targets here. The first is at a CIO level, when you're looking at a significant digital transformation and that involves modernizing new applications.

And that's typically CIO level position in terms of, hey! I'm looking at the application portfolio. I'm going to figure out, where I'm going to build and invest in new applications. And what I'm going to do with respect to running my existing applications efficiently or refactor them, et cetera. So that level, that's a CIO level decision.

Then we have our infrastructure buyers, who traditionally have been buying the vSphere and the VMware Cloud Foundation and our SDDC offerings. And with all of them, they are now seeing a mandate to say, I need to provide infrastructure that developers can consume. And increasingly, Kubernetes is part of that infrastructure.

And so that's -- so our traditional base of IT folks that we sell to, is a very good target for us to now say, hey, you can all be relevant here. We have Kubernetes now. It's built into whatever you had before. And now you can offer this as a service to your developers. That's the second category.

The third category, are app developers. And historically, we've been calling on app developers with the Pivotal, now Tanzu application services. That's very much a developer-focused play. We also have significant developer footprint with other offerings there, which I didn't mention like Spring which is an open source, a good framework for apps; our Bitnami, which is also part of the portfolio for consuming third-party open source packages.

So we are building on that developer base that we have with those offerings. And continuing to also target tangle application services at those developers. So it's threefold, in terms of target customers.

Brad Reback

Got it. Okay. And maybe as we sort of think about the expanding surface area of Tanzu, as it relates to the customers you're selling to. I know Pat, on the earnings call mentioned or alluded to some new people that have been brought into the organization. I think you -- a new CMO originally from Google Cloud. Maybe you can just give us an update on recent additions and how they enhance the overall organization?

Rajiv Ramaswami

Yeah. I think Pat has talked about faster to the future, overall in terms of how we are moving forward as a company, making use of both what we've seen today in the marketplace, in terms of potential disruptions and changes in buying behavior, at the same time, aligning everything to these five franchises that we talked about, application modernization, multi-cloud, retro cloud networking, security and the digital workspace. So we are aligning the entire company, both the product teams, as well as the go-to-market teams, around this.

So on the product side, we just announced a reorganization of all our business units to along these franchises. We brought on, as you saw, some new leaders there as well. Carol Carpenter is now our new Chief Marketing Officer. She came from Google Cloud, where she was doing marketing for Google Cloud.

We brought Fidelma Russo, who is an established executive via long tenure for running part of our cloud business, one of those, as part of our cloud franchises. And then we also brought Sandy Hogan to run our commercial selling business. So we continue to bring talent in and we are moving forward executing on these five franchises across the board, right around 360 level across the company.

Brad Reback

Excellent. Excellent. Earlier today I hosted a panel with a software developer, a platform executive and some internal IT folks here at Stifel. One of the questions from the audience stemmed around, I'll call it the classic best-of-breed versus suite approach. And if we put VMware on the suite side versus a litany of best-of-breed vendors, how do you effectively compete against some of the agility of and the modern nature of some of those best-of-breed in the marketplace?

Rajiv Ramaswami

Look, I think historically by the way, we were a best-of-breed company and our move towards solutions is actually fairly recent. And if anything now we are moving from very much a product-focused mindset. When we looked at – if you think of us, okay we have the best-of-breed compute. We have the best-of-breed storage with virtual SAN. We are the leader there. We're the leader in software-defined networking. We are the leader in SD-WAN. We are the leaders in digital workspace.

So arguably, we've been best-of-breed in many of these big markets that we play in, not necessarily in some of the new ones, like for example I would say in security. We haven't established ourselves. We are in the process of establishing ourselves. But increasingly we're trying to combine that best-of-breed mentality with the ability to provide full solutions for the market because at the end of the day many of our customers that are embarking on these projects care about the outcomes that they're driving.

And they're less about consuming point products and integrating point products into their infrastructure versus trying to get full solutions. So if you look at our solutions, our VMware Cloud Foundation for private cloud as well as all the public clouds. Clearly, we are not forcing customers to buy these things as piece parts. You get a cloud. And whether you want to run it on-prem, whether you want to run it in any of these public providers. Digital workspace is much the same.

When you look at security, we have the same opportunity. In fact, historically, security has been very much a best-of-breed kind of thing where the customer typically would put in 50, 60 security products and have to deal with integrating them, putting them together at the same time not really very successful in mitigating attacks and protecting and limiting risk.

And so we have to simplify the portfolio and what we are doing is to create a different way for people to consume security, which is really by integrating as much as possible into the platforms that we sell. Whether it be our compute platforms, our cloud platforms, whether it be the end user workspace platforms and our network platforms that we're already selling versus having to bolt-on security after the fact. So we see an opportunity there to simplify how these things are getting consumed. So, I think the answer to your question it's going to be a bit of both. We still need to have best-of-breed products and at the same time do a much better job of providing those solutions to our customers so they can consume them easily.

Brad Reback

Great. And Rajiv on security specifically obviously the acquisition of Carbon Black, a big aggressive move on that front. If you think of the broad security landscape like you said historically tons of small best-of-breed vendors. Are there areas that are more attractive to you than others as you think about building out the portfolio?

Rajiv Ramaswami

Yes. So, if you look at the distinct markets within security there is endpoint, there is network, right, and endpoint includes both what I would call device endpoints and end-user endpoints as well as workload or server endpoints. And then there is cloud security.

We are quietly focused on those three areas. And we continue -- we obviously, have a foundation -- initial foundation in network security where we've largely built organically through the NSX developments and including some firewall capabilities. We continue to add tuck-ins.

So, for example last week, we announced the acquisition of a company called Lastline. And Lastline adds some sandboxing capabilities. They also add network detection and response which make our overall firewall solution a lot stronger. They also bring together a world-class threat research team, one of the best in the industry and the world. And they're now going to be working for VMware continuing to be on the latest edge of detection of threats and remediation of threats. So, that -- I look at that as an add-on an enhancement to our network security portfolio.

On the endpoint side, obviously, we bought Carbon Black and now we are focused very much on integrating that not just across device endpoints but also with vSphere on the workload security side and continuing to drive integration with vSphere, with end user computing, and with networking to create this overall security response across endpoint network and cloud.

So, our view is we've got the foundations within each of these areas and we need to start building and we need to do more deeper integrations and build this cross-portfolio across that then creates this unified security risk management profile for our enterprise customers.

Brad Reback

Got it. Got it. And you mentioned NSX and networking, obviously, an acquisition that was done many, many years ago. Talk to the evolution of that product set and what the forward vision is?

Rajiv Ramaswami

Yes. So, with networking M&A, of course, did the Nicira acquisition many years ago and then we built the NSX portfolio from thereon. And today where we are at is NSX is a fairly complete data center portfolio that includes traditional layer two, layer three networking all done in software. But it also includes a range of network services. So, now it includes load balancers which we got through the Avi acquisition.

It includes now a full firewall for all internal use cases which we've been building organically as part of that and now continue to enhance with acquisitions like Lastline. So -- and of course, we also have a vRealize Network Insight which provides end-to-end network monitoring and visibility.

And all of these by the way we take an end-to-end view it's not physically tied to a data center. It runs across end-to-end from a branch, to the cloud, to the edge, to the data center, right? Across all of that the ability to network connect, secure, right and monitor and manage. That's really the networking portfolio that we have today. And we've added of course SD-WAN to extend that into the edge and branch locations.

So the networking portfolio today is fairly complete. We've got like I said, L2, L3 networking load balancing firewall, branch connectivity, right, and end-to-end monitoring and visibility. So that's the portfolio.

And when you look at the selling motions here and how we think of the market, a good chunk of this is just part-and-parcel of our cloud motion. So when a customer buys a VMware Cloud Foundation or a VMware Cloud on AWS service networking is already part of that service.

Then we have specific networking-focused motions around where you're led by a networking specialist sales force where we can say hey, we can do load balancing software scale-out much better than existing players. We can do firewalling for internal use cases, again significant cost benefit much more automated than existing players.

We can do branch transformation and branch networking with SD-WAN, again much more focused on cloud use cases better than most other players and we are now established as a leader in that market as well. So we've got the big VMware motion with our mainline cloud offerings and also networking-specific selling motion led by specialists as we go to market.

Brad Reback

And given the breadth and depth of the portfolio today who are you actually competing with if anyone in a true sales cycle?

Rajiv Ramaswami

I mean it depends on -- so in the cloud I think it's really -- it's a cloud play, right? We don't really compete with anybody there. I mean it's more of a customer buying whether deciding to go native cloud or whether they go with the VMware offering. Those are the choices there.

When you look at the very specific networking-oriented motions, when you go to load balancers we are typically competing against F5 or Citrix. When you look at the firewalls, we are now starting to compete against folks like Palo Alto. When you look at SD-WAN, it's a somewhat crowded marketplace. There's probably 20, 30 players out there. Cisco is probably front and center.

And I would say, Cisco overall in networking they have pretty much everything in the portfolio in some form or fashion. So we see Cisco quite a lot across everything in the portfolio.

Brad Reback

Got it. Maybe switching gears to vSAN. Obviously, HCI has been talked a bunch about over the last few years. Your main competitor there Nutanix has had some uneven performance. And I wonder how much of that is due to competitive factors from you versus that market maybe entering a state of maturity?

Rajiv Ramaswami

We continue to see growth in vSAN. We are very happy with our growth there and we continue to grow faster than the market and continue to take share, right? I mean we are outpacing the market. We're outpacing the competition. And both our standalone vSAN sales, as well as our VxRail appliance sales through Dell are growing nicely.

I would also say that, the nature of HCI is changing. It's become mainstream now for sure as you indicated Brad. It has also become an integral part of the full cloud stack which is a significant differentiation for us, right? Increasingly when we sell a full cloud stack that includes vSAN, right? That includes vSphere, vSAN, NSX put together in that VMware Cloud Foundation. And that cloud foundation now being available on all the clouds, is an integral part of the overall offering, right? And so customers now -- many multiple customers are now focusing on buying a full cloud stack, versus just buying vSAN or HCI as a point product.

So it's still a mix. I mean, to be fair, we have transactional motions with the vSAN, but we also have a significant motion with our cloud offerings. And that's partly -- these are the reasons why we continue to gain share and continue to outpace the market.

Brad Reback

Great. Switching gears, again. The telco opportunity, it's something you guys have been talking about for the last sort of I think 18 months. Where are we in that evolution? And what are customers exactly buying from you?

Rajiv Ramaswami

Yes. So, telco is still a large untapped opportunity that has played out over many years here. As the carriers, the telco operators look to modernize their infrastructure and start migrating their infrastructure to, what they call, network function virtualization, which is really building their infrastructure on more standardized server-type data center-type platforms in a virtualized infrastructure, rather than deploying a whole set of purpose-built appliances and network gear inside their networks.

And that is the transition. And that, of course, favors us, because now it's going to be more standard servers, with virtualization deployed, with software-defined networking deployed and stitched together, like the similar transition that has already happened in the enterprise is now happening in a telco world.

Now a big trigger for this is obviously the CapEx cycle that's coming with 5G. And as people build out 5G and they have to deploy new infrastructure, this is a natural inflection point for them to go deploy modern virtualized infrastructure. So that's the opportunity in front of us.

Now in terms of what we're selling today, it's largely actually, we call it, we have a telco cloud suite, which is really just essentially the same products that we have in the enterprise side, which is vSphere, vSAN and NSX, VMware Cloud Foundation deployed for telco infrastructure coupled with orchestration on top. We have a telco cloud orchestrator that runs telco-specific applications and orchestrates applications on top of this telco infrastructure. That is largely the current offer in terms of what we have in the market.

Now going forward, we expect to see even more future potential, we have an effort around, for example, creating and disrupting the radio access network side of this by going to virtual RAN, where your radio access was, say, again, very much a large area of spend for carriers. In fact the biggest area of spend, but, again, very much purpose-built gear inside that.

And we are now looking to create an interoperable spec where carriers can mix and match and also allow newer players to come to market, potentially more U.S.-based players, for example, come to market and be able to build offerings for the RAN. That is a longer-term disruptive opportunity that we also see and we are investing in.

Brad Reback

Excellent. We're just about out of time. So I'll wrap it up if there are any final thoughts you'd like to leave us with?

Rajiv Ramaswami

Look, I think, as we look at VMware going forward, we are now largely focused on these five franchise platforms around application modernization, multi-cloud, virtual cloud, networking security and the digital workspace. And increasingly, these are front and center for our customers' digital transformation journeys.

And so, we're quietly focused on areas that our customers truly care about, as they go look at transforming their businesses. And we are continuing to work closely with our customers with translating the innovation that we bring to the market, in terms of business outcomes that they can realize. So I wish everybody on the call stay healthy, stay safe and thank you, Brad.

Brad Reback

Thank you. Thank you, Rajiv. Hopefully, we'll see you in person next year in Boston.

Rajiv Ramaswami

Be right with you. Thank you. Bye.