Dell-EMC merger weighs on VMware fortunes

As the Dell-EMC deal looms large, VMware will retool its cloud strategy, led behind private to public cloud migrations.

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The impending Dell-EMC merger continues to be a dark cloud hanging over VMware.

The virtualization company confirmed 800 layoffs, a new CFO, and plans to refocus its cloud and networking strategies.

In its fourth quarter earnings call to analysts, VMware CEO Pat Gelsinger said the company will deliver a new version of NSX later this year for IT shops to better manage data across both VMware and non-VMware public clouds including Amazon Web Services (AWS), a more narrowly focused role for its vCloud Air offering, and an expansion of its private cloud initiatives.

"The [vCloud Air] service will have a narrower focus providing more specialized cloud software and services that will be more distinct from other public cloud providers," Gelsinger said. "We will focus on how customers can extend their private cloud workloads into the public cloud."

Another piece of this strategy, involves building on its current NSX offering with a new version that better enables users to create secure and encrypted networks across public clouds, also supporting AWS's offerings, as well as Microsoft's Azure and on premises data centers. VMware is now offering its first set of limited trials for the service that work on top of AWS, Gelsinger said.

Some analysts were not surprised by the retooling of the company's cloud strategy.

"We see this as a concession of some of the public cloud providers out there as well as the short-term Wall Street head winds," said Geoffrey Woollacott, principal analyst/practice manager; at Technology Business Research (TBR), Inc. in Hampton, NH.

Instead of chasing public cloud dollars, according to Woollacott, VMware is making a better decision to focus on users' "network pipes" with NSX as a way to improve the speed and efficiency of transferring workloads.

"If users are going to increasingly move workloads back and forth, they will want to do that on an optimized network layer, and they will want something like NSX to do that," Woollacott said.

VMware would seem to have proper incentive to further focus its strategies around NSX, as the company reported that its NSX business grew 100% year-over-year bringing its total annual bookings run rate to $600 million, Gelsinger said.

Other bright spots included the company's end user computing business growing 30% year-over-year to a run rate of $1.2 billion and its Virtual SAN business growing 200% year-over-year to bring its run rate to $100 million.

Gelsinger termed 2016 as a key transition year in which the effect of the company's new products will outweigh the decline in its core compute products. He said that both total and license bookings will exceed revenue growth by 3% to 5% as the company builds its deferred revenue resulting in accelerated growth by 2017 and beyond.

Wherefore art thou, Virtustream?

But some analysts believe it could be a few years before the newer products can move the needle on revenues growth.

"We see the traditional virtualization products still contributing to the majority of VMware revenues for the next two to three years," said Andrew Smith, data center analyst with TBR.

"Nothing is really changing at a rapid pace", he said. "They are just trying to mitigate the declines and accelerate the growth of new products as fast as possible."

VMware officials had little to say about Virtustream, which was to play a dominant role in the now defunct joint venture between EMC and VMware, except the company remains strongly committed to it as well as its lower-end counterpart, vCloud Air.

VMware also said its current CFO, Jonathan Chadwick is leaving the company and expanding his advisory role with a number of other companies. He will be replaced by Zane Rowe, now the current CFO of EMC. Rowe will take over his new role on March 1.

Company officials had little to say about the 800 layoffs that were carried out earlier this week, only that it would help VMware better align its resources with our most important resources.

Ed Scannell is a senior executive editor with TechTarget. Contact him at escannell@techtarget.com.

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What will the Dell-EMC deal ultimately mean for VMware?
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It least for vCloud Air, I don't know that the Dell/EMC deal would have changed the future. It wasn't growing and adoption was low. Virtustream has much more efficient technology, so they would have had to retool vCloud Air. 

If vCloud Air is now just a Co-Lo extension and Disaster Recovery service, it'll be hard to stay relevant in Public Cloud. 
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VMware is critical to the success of SDN, CI, H-CI, VMware has always been a core investment partner to VCE/EMC CI; my personal opinion, no speaking for anyone other than myself, there is no reason to think that won't continue.
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Thanks Brian for the response. In your opinion what kind of retooling would they have to do to make vCloud Air more compelling? And if they scaled its capabilities and features upward, how would they then position that vs. Virtustream? I know it is hard to know what the EMC Federation had in mind when EMC acquired Virtustream when it already had vCloud Air. Maybe they thought the two presented some sort of complimentary high end low-end solution for IT shops.
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