Below is TBR’s commentary on VMware's 1Q10 Earnings call. Please feel free to use the below content, or call/email for additional commentary.
Revenue growth returns with a vengeance VMware benefits from the resurgence in customer spending in calendar 1Q10, with revenue growth of 34.7% year-to-year; however, growth was partially inorganic with the closing of the Zimbra deal during the quarter contributing to revenue. Zimbra provides an open source email and collaboration tool. With Zimbra integrated into the company, VMware will use the technology to help streamline data centers. Citrix, while smaller in scale, has yet to experience substantial revenue growth, with single-digit revenue growth over the last three quarters. Meanwhile, competition with Microsoft’s HyperV hypervisor and the merging of Oracle and Sun selling Sun Solaris virtualization and Xen hypervisor, shifts the virtualization landscape as vendors fight for share in an increasingly mature market. VMware license revenue increased 21.5% year-to-year, representing the first year-to-year increase since 4Q08. While services revenue increased substantially in 4Q09 from credits to increase enterprise license agreements and vSphere adoption, services revenue maintained rapid growth into 1Q10, with revenue reaching $54 million, an increase of 44% year-to-year
EMC transfer will drive virtualization growth VMware entered into a definitive agreement with EMC to acquire portions of EMC’s Ionix IT Management Business during the quarter. The addition of EMC’s IT automation business allows VMware to improve management and deployment of virtualized servers. VMware is preparing for steady growth as customers move to more virtualized environments. Customer adoption continues and VMware is prepared to take share and the Ionix assets address the rising issue with virtual server sprawl. By acquiring EMC’s Ionix business, VMware recognizes the need to address virtual server sprawl through better management. TBR estimates headcount will increase by 300 sequentially from acquiring EMC’s management business in 2Q10.
VMware targets growth in SMB market While VMware has a small presence in the SMB market, the company begins to gain traction with small to midmarket businesses, reporting growth in 1Q10. VMware has the potential to increase market share with SMB’s, as the SMB market represents a huge growth opportunity, and is a market that is addressed poorly by Oracle. Meanwhile, Microsoft is competent in penetrating the SMB market and has the benefit of scale to win over customers.
Enhanced security will drive further adoption In addition to acquiring a piece of EMC’s business, the company introduced a secure, multi-tenancy architecture, with partners Cisco and NetApp, to expand security in virtualized environments. Cisco will provide network traffic management capabilities, while NetApp will contribute storage solutions. TBR surveys of non-adopters of cloud computing indicates that security is a customer concern deterring customer adoption. Secondary barriers include integration and lack of cloud computing standards. VMware will have a better opportunity to maintain steady customer growth by removing the main inhibitors to adoption.
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