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VMware to cut jobs, realign products in 2013

VMware will cut 900 jobs as it rationalizes its product portfolio in the course of the coming year, executives said on the company’s earnings call Monday night.

VMware has added 6700 employees in the last three years, and the overall headcount by the end of fiscal 2013 is still expected to be up by 1000 despite the job cuts, officials said. The company ended 2012 with 13,800 employees.

VMware CEO Pat Gelsinger said at the beginning of the call that VMware would realign itself around three “growth priorities,” the software-defined data center, the hybrid cloud, and end user computing. Product expansion is expected in management, networking, security, storage and high availability.

“When Pat Gelsinger took over as CEO, he made very clear that VMware was going to double down as an infrastructure company,” said Chris Wolf, research VP for Gartner Inc., based in Stamford, Conn.

Details were scant on which products would be targeted for elimination, though officials did mention SlideRocket as a product not central to the company’s business that would be on the chopping block.

Wolf said he expects some cuts to come around the shift to the Pivotal Initiativewith EMC. “The group around Cloud Foundry and vFabric hasn’t gotten the traction VMware would like to see,” he said. “That’s something we will certainly have to watch.”

Ionix management software sold to VMware by EMC in 2010 is no longer part of the company’s core management offerings, Wolf said. This could account for some of the job cuts.

Execs touted the performance in the fourth quarter of the vCloud Suite, which bundles together VMware’s vSphere with its vCloud Director, vCloud Connector, and vCloud Networking and Security products, among others. About 1000 existing vSphere customers took advantage of the offer of a free upgrade to vCloud Suite Standard in the quarter.

Expect more products to be wrapped up in packages like the vCloud Suite going forward, said COO Carl Eschenbach.

“We’re not going to be selling what we’re calling ‘naked vSphere’ into the market,” he said.

VMware executives also scoffed at the idea of Microsoft as a competitor, saying the company’s financials had not been impacted in any way by Microsoft’s Hyper-V.

“Customers we talk to are just starting to kick the tires” on Microsoft’s Hyper-V included in Windows Server 2012, Wolf said. “We don’t expect serious deployments of Hyper-V 3 to pick up until the second half of the year.”

Even if they do, they won’t necessarily replace VMware, but rather augment existing deployments in a tiered hypervisor strategy or in branch-office scenarios, Wolf said.

These details were revealed amid a mixed bag of financial reports from VMware.

While the fourth quarter saw $1.29 billion in revenue, VMware forecast its first quarter 2013 revenue to decline significantly, to between $1.17 billion and $1.19 billion, falling below analyst estimates of $1.25 billion. Shares were down in after-hours trading on this news.

Enterprise license agreements (ELAs) comprised a record 33% of bookings in the fourth quarter, none exceeded $10 million, as the company would normally expect, particularly at the end of the year in the United States.

Officials said that for the full year of 2013, growth would be stronger in the second half than in the first half of the year, and that they expected “some distraction” associated with product realignments and the Pivotal Initiative.

Few details were given about the Pivotal Initiative and its impact on VMware’s business; an EMC / VMware Strategy Forum to detail those plans is scheduled for March 13 in New York City.

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