VMware says faster growth will come once customers get back inside data centres

SaaS revenue tops licences for the first time in solid Q3

VMware has reported Q3 growth that beat guidance offered earlier in its financial year but said results would have been better but for a slowdown in “transformational projects”.

Revenue for the quarter was $2.86 billion, up eight percent year on year. Net income hit $434m, up from $407m in the same period in 2019. The company singled out 44 percent growth in subscription and SaaS revenue, which reached $676m. By contrast on-prem perpetual licences fell 12 percent year-on-year to hit $639 million., CFO Zane Rowe said that’s the first quarter in which VMware’s subscription and SaaS revenue topped cash from licenses but noted the company’s Q4 is usually a big source of licence sales.

But VMware is clearly on the way to selling more subscriptions. CEO Pat Gelsinger said the company is “on track to make most of our major product offerings available as subscription and SaaS in the next calendar year” and looked forward to that achievement giving customers the option to buy VMware kit with “the flexibility they need.”

Gelsinger said VMware has seen a slowdown in big projects and said that when they are on the table “those large deals just take longer.”

“There’s another sign off required,” he said. “They’re looking and saying: ‘Boy, my priorities are shifting around because I’m not spending as much time in the data center yet. We can’t have our teams back in place’.”

That attitude has made for some year-on-year revenue dips for products like VSAN and NSX that are often bundled into big deals. Gelsinger said that result is not commentary on their long-term prospects, citing strong sales of hyperconverged infrastructure that includes VSAN. Nor did he seem concerned about flat sales of core software-defined data centre products. Indeed, he said VMware expects an improving economy to help it post annual revenue of $11.7bnm up eight percent year-on-year. Delivering that number will require meeting Q4 guidance of $3.225bn, a five percent improvement.

The overall picture Rowe and Gelsinger tried to paint was one of VMware doing better than predicted, despite the pandemic and the unexpected changes it has wrought on the company.

“We’re pleased with our overall progress in the midst of the global pandemic and while operating virtually,” Rowe said. “We will continue to invest in and focus on further expanding our subscription and SaaS portfolio, which we believe will drive Company growth, customer satisfaction and shareholder value. ®

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