VMware 2012 Earnings: The Microsoft Story - InformationWeek

InformationWeek is part of the Informa Tech Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them.Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

IoT
IoT
Mobile
News
1/28/2013
03:28 PM
Connect Directly
Twitter
RSS
E-Mail
50%
50%

VMware 2012 Earnings: The Microsoft Story

At the close of trading Monday, VMware will hold its fourth quarter 2012 earnings call. Revenues are expected to come in on the high side of its range.

7 Cheap Cloud Storage Options
7 Cheap Cloud Storage Options
(click image for larger view and for slideshow)
Microsoft is rapidly improving its Hyper-V and Virtual Machine Manager. VMware's respected CTO Steve Herrod has just resigned. Nevertheless, when VMware reports its fourth quarter results after the close of trading today, Wall Street analysts expect it to come in on the high end of its projected revenue range.

Opinion is divided, however, over whether that means VMware has a bright future of continued revenue growth, or whether stepped-up competition from Microsoft and an increasingly saturated market for virtualization in the data center will mean a leveling off of revenues. Any slowing of revenues would affect VMware's heavy investment in R&D, which has keep profit margins lower than they might have been.

Rajest Ghai, analyst at Craig-Hallum Capital Group, an institutional investment banking firm, said Jan. 17 that VMware stock owners should "hold" their shares rather than buying more, and gave the stock a $94 target price in 2013. He saw a "significant potential slowdown in fiscal 2013 license revenue sales" due to increased competition from Microsoft and open-source OpenStack. Shares were trading at $95.57 and moving as he made his recommendation. They were trading at $98.47, in advance of the announcement.

Commenters on his analysis at Barron's Online Jan. 17 noted that Ghai had referred to OpenStack cloud software as "OpenStacks" and suggested that might indicate he didn't know what he was talking about. But Ghai made his comments the day after Microsoft announced improvements to its Hyper-V and System Center with Virtual Machine Manager management environment.

[ Want to learn how VMware's investment in Puppet Labs will bring it a step closer to the software-defined data center? See VMware Invests $30 Million In Puppet Labs. ]

One instance of the Virtual Machine Manager module in System Center 2012 Service Pack 1 can now manage up to 8,000 virtual machines. The capabilities of the management system have been more tightly integrated with Windows Server 2012 to produce a better managed Hyper-V environment.

VMware itself has predicted that 60% to 70% of server workloads were likely to be virtualized by the end of 2013. "We believe that 85% of enterprise workloads are potential targets for server virtualization. We believe about 15% of workloads are unlikely to be virtualized considering they are workloads that need bare-metal performance and unlikely to be amenable to allowing another layer of software to come between the application code and the CPU… This, in our opinion, suggests the greenfield opportunity for VMware is fast declining."

In a similar vein, Ghai saw OpenStack as an additional market-limiting threat. VMware has been able to out-execute some other would-be competitors, acknowledged Ghai, but OpenStack "is by design a more open solution, unlike VMware's Cloud Automation and Orchestration vCloud suite, which runs only with VMware's vSphere," he wrote.

"OpenStack is being developed with code and financial support from a wide variety of industry participants that could end up supporting its use in preference to VMware," he warned. Comments on his analysis tended to disagree with Ghai. One commenter pointed out that one of them had come from a VMware employee.

Cloud Connect returns to Silicon Valley, April 2-5, 2013, for four days of lectures, panels, tutorials and roundtable discussions on a comprehensive selection of cloud topics taught by leading industry experts. Join us in Silicon Valley to see new products, keep up-to-date on industry trends and create and strengthen professional relationships. Register for Cloud Connect now.

We welcome your comments on this topic on our social media channels, or [contact us directly] with questions about the site.
Comment  | 
Print  | 
More Insights
Commentary
2021 Outlook: Tackling Cloud Transformation Choices
Joao-Pierre S. Ruth, Senior Writer,  1/4/2021
News
Enterprise IT Leaders Face Two Paths to AI
Jessica Davis, Senior Editor, Enterprise Apps,  12/23/2020
Slideshows
10 IT Trends to Watch for in 2021
Cynthia Harvey, Freelance Journalist, InformationWeek,  12/22/2020
White Papers
Register for InformationWeek Newsletters
The State of Cloud Computing - Fall 2020
The State of Cloud Computing - Fall 2020
Download this report to compare how cloud usage and spending patterns have changed in 2020, and how respondents think they'll evolve over the next two years.
Video
Current Issue
2021 Top Enterprise IT Trends
We've identified the key trends that are poised to impact the IT landscape in 2021. Find out why they're important and how they will affect you.
Slideshows
Flash Poll