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VMware says vSphere in decline, new multi-cloud plan will ensure growth

Virtzilla beats the street, fires 800, crimps vCloud Air, doubles down on new products

VMware is setting itself up for life after vSphere, outlining a new multi-cloud strategy and insisting its newer products are all growing nicely.

It also said it will scale back its vCloud Air cloud service, and fire about 800 staff as it moves people into areas likely to fuel growth.

VMware execs used today's Q4 2015 and FY 2015 financial results announcement to explain that vSphere sales fell last year and are expected to keep falling. That drop in core compute virtualisation sales will be offset by faster growth for new products. The next 12 months have therefore been declared a year of transition, but by 2017 VMware reckons it will be poised for “accelerated long-term growth.”

Evidence for the shift comes in the form of nice numbers for the three products VMware created as growth projects, namely NSX network virtualisation, VSAN for virtual storage, and AirWatch for end-user computing.

NSX is now a US$600m business, and growing fast. End-user computing now has an annual bookings run rate of over $1.2bn. AirWatch even turned a modest profit in Q4. VSAN is doing $100m a year and was referred to as a “hyperconverged” product. VMware even claimed that when one looks at the hardware sales associated with VSAN, it may be the number one hyperconverged vendor, an odd claim given its own EVO:RAIL – pitched as a competitor to the likes Nutanix and SimpliVity – didn't get a mention in the CEO and CFO's conference call today with analysts.

vCloud Air is also doing about $100m a year, but VMware has decided it will narrow its focus and stop pouring capital into the business: any ambition Virtzilla had to provide a broad competitor to the likes of AWS and Azure are now over. The company's focus is now to offer vCloud Air to core customers, but to make sure that vCloud Air network partners, who create clones of the service, receive a steady stream of shiny new things to offer customers.

Rival clouds are now seen as an opportunity for VMware's next wave of growth, as CEO Pat Gelsinger announced that VMware has built a cut of NSX that can create virtual networks spanning on-premises kit plus workloads in Azure and Amazon Web Services. Testing of this code is already under way, with a view to making it possible to consider a multi-cloud rig as a single logical entity and thereby “transcend the limitations of any cloud service.” VRealize and AirWatch will also get the multi-cloud, multi-device treatment.

The software-defined data centre vision therefore expands to become a software-defined data centre spanning multiple sites and/or providers.

There's some pain to come as in order to focus on its growth products VMware will dispense with the services of about 800 staff. Those that remain will be focussed on the hot products, which doesn't suggest rapid vSphere innovation is on the agenda.

All this new planning is of course being done in the name of the only thing that ultimately counts for a listed business: enhancing shareholder value. VMware did okay on that front in all of 2015 and the year's fourth quarter.

For Q4, revenues hit $1.87bn, an increase of 10 per cent from the fourth quarter of 2014 and up 12 per cent year-over-year on a constant currency basis. Earnings per share were a cent above expectations and revenue was $20m higher than forecast.

GAAP total revenues for all of 2015 were $6.57bn, an increase of nine per cent from 2014, or up 12 per cent year-over-year on a constant currency basis.

The company remains rudely profitable – GAAP income for the year was $997m - and has a profit margin exceeding 30 per cent.

VMware's execs were at pains to point out that those numbers look even better when one considers that its Russian, Brazilian and Chinese business have sunk nastily due to economic conditions, and that it paid $75.5m to settle a price-fiddling dispute with the US government.

Gelsinger acknowledged that customers and investors alike remain rightly concerned about just what will happen to VMware when it becomes a part of Dell, but said he thinks there's nothing but sunshine once Dell's sales force starts to push Virtzilla's wares.

The earnings call also saw VMware announce that chief financial officer Jonathan Chadwick is leaving the company. His replacement will be Zane Rowe, who currently holds the same post at parent biz EMC. ®

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