On July 23, 2013 VMware® held its Q2 2013 Earnings Conference Call. The participants included Pat Gelsinger, CEO, Carl Eschenbach, President & COO and Jonathan Chadwick, CFO.
We found the quarterly performance of this mature enterprise ISV to be exceptional, in sharp contrast to the respective performances of Oracle®, IBM®, and Microsoft®.
For one, quarterly revenues grew more than analyst estimates: “Excluding Pivotal [VMware® divested itself from this business in the same quarter], revenues grew at an even faster pace of 15%, year over year”, Mr. Gelsinger reported. For two, operating margins improved to a “record high of 33.5%”. Finally, for three, Mr. Gelsinger reported “the company is now aligned and focused. [Their] realignment activities have now been completed”. On this latter point, Oracle® and Microsoft® executives both reported their businesses to be in the very early stages of transitioning into the type of operations capable of supporting enterprise business needs for mobile and cloud computing options.
The product driving VMware’s success is vSphere®. But the direction customers are taking is to add “newer products that extend the portfolio beyond standalone vSphere.” Sales of these newer products “represented more than 25% of license bookings.”
vSphere can be used to build a private cloud. It is also capable of providing Infrastructure as a Service, as required. So enterprise businesses, through implementing vSphere, can replicate a lot of the features of Amazon AWS or Microsoft Azure internally. Observing VMware’s success leads us to a conclusion about the market size for cloud IaaS offers as substantially larger than we thought. If Amazon has over 75% of the multi-tenant, public cloud variant of this solution, the private cloud component may be as large, or even larger.
Mr. Gelsinger also alluded to a strategic alliance with SAP. Customers not only look to VMWare for the IaaS component and the desktop virtualization solutions required to support their migration from client server to cloud computing. They are also sourcing the SaaS component, meaning the enterprise database from them, as well.
We hope the performance of VMware in this quarter will be replicated by other enterprise, mature ISVs over the next coming quarters.
© IMB Enterprises, Inc. & Ira Michael Blonder, 2013 All Rights Reserved