Here's what keeps VMware CEO Pat Gelsinger awake at night
Virtzilla fears deep-pocketed rivals beating it into new and cloudy markets
VMware has released its Form 10-K, the annual report in which entities listed in the USA are required to offer a warts-and-all account of all the things that could possibly go wrong.
10-Ks are famously detailed and follow a rigid format, so VMware's includes the “mine safety disclosures” required of all such documents (the section reads “Not Applicable”). Much of the content of the filing is therefore stuff the company just has to say so that investors can't say they weren't warned. But there are also some revealing nuggets in the document that VMwatchers may find interesting.
One that caught our eye on The Reg's virtualisation desk is below, in a section titled “Our new product and technology initiatives subject us to additional business, legal and competitive risks.” :
Also, certain of our new product initiatives have a subscription model. We may not be able to accurately predict subscription renewal rates or their impact on results, and because revenue is recognized for our services over the term of the subscription, downturns or upturns in sales may not be immediately reflected in our results. Moreover, as customers transition to our hybrid cloud and SaaS products and services, our revenue growth rate may be adversely impacted, during the period of transition as we will recognize less revenue up-front than we would otherwise recognize as part of a multi-year license arrangement.
VMware expressed similar sentiments during its annual earnings call, so it looks like making the transition to as-a-service offerings is causing some furrowed brows at the company. There's also plenty of discussion in the filing about the future of end-user licence agreements, on which VMware is heavily reliant.
Plenty of those licences are for the company's flagship vSphere product, the prospects of which are assessed as follows:
“... certain markets for our VMware vSphere product line have matured. Our sales of standalone VMware vSphere have declined as a portion of our overall business as we seek to transition our customers to product suites, our newer products and infrastructure-as-a-service offerings. If we fail to introduce compelling new features in future upgrades to our VMware vSphere product line, manage the transition to hybrid cloud platforms, develop new applications for our virtualization technology or provide product suites based on the VMware vSphere platform that address customer requirements for integration, automation and management of their IT systems, overall demand for products and services based on VMware vSphere may decline.
Again, VMware has expressed similar sentiments before: the company knows it needs to up-sell and cross-sell its customers to new products or growth will be elusive. The 10-K spells that out in graphic detail.
The document also worries about how VMware will compete with larger rivals that it knows are chasing the same software-defined and hybrid cloud markets it covets. After mentioning collaborations between Microsoft and Cisco, and among Cisco, Red Hat and OpenStack, VMware has this to say about software-defined networking:
“Many of the companies driving this trend have significantly greater financial, technical and other resources than we do and may be better positioned to acquire and offer complementary products and technologies. The companies and alliances resulting from these possible combinations may create more compelling product and service offerings and be able to offer greater pricing flexibility than we can or may engage in business practices that make it more difficult for us to compete effectively”.
VMware also spells out the potential for conflict with its parent company EMC.
“There can be no assurance that EMC will not engage in increased competition with us in the future,” the filing says, going on to suggest it is possible that EMC could do all sorts of nasty things to VMware, including making it pay some of its taxes! There's also a mention that VMware could be required to toss some cash into Pivotal.
Form 10-Ks list all sorts of risks that could conceivably send things pear-shaped for a company. So VMware's angst, spelled out above, is no reason to panic.
But the filing also makes the company's position plain: it mentions the “early stage” of markets for cloud computing and network virtualisation a few times. There's plenty of chances for VMware to shine and grow. And perhaps just as many traps into which VMware – and other market participants – could stumble. ®