VMware might just have cracked the container market with NSX

Q4 and FY18 results beat expectations, with end-user compute starring

VMware might just have found a way to stay relevant as containers threaten virtualization.

The biz today announced another strong quarter: a $970 million charge related to the US Tax Cuts and Jobs Act tipped the company into a paper loss, but the numbers were otherwise pleasing.

Revenue for Q4 2018 was US$2.31 billion, up 14 per cent from the fourth quarter of 2016*. Revenue for the year was $7.92 billion, up 12 per cent. Net margins hit a company record 37.3 per cent. Operating income for the year hit $1.69 billion, an increase of 17 per cent year on year.

VMware's discrete businesses also did well. End user computing reported a 30 per cent growth for the quarter and the financial year, with CEO Pat Gelsinger telling investors VMware is beating competitors thanks to its combination of mobile device management, identity management and desktop services. VSAN, the company's software-defined storage and hyperconvergence product, grew 130 per cent for the year and 100 per cent in the quarter to reach an annualised run rate of $600m. By way of comparison, upstart Pure Storage on Thursday reported US$383m for the quarter and was excited to say it cracked the $1bn annual sales barrier. And Pure of course gets to sell hardware, a chore VMware palms off to partners.

CFO Zane Rowe said hybrid cloud and SaaS revenue accounted for eight per cent of revenue in Q4, and also announced 30 per cent growth in sales to service providers to show that VMware can do alright from cloud providers

But perhaps the most significant news was that VMware has started to see customers buy its NSX network virtualization software just to put it to work with the Pivotal Container Service. Many commentators have queried whether VMware will be threatened by containers replacing virtual machines as users' abstraction of choice. VMware has responded to that in three ways: advancing VMs as a more secure place to run containers; pointing out that its management tools can handle containers and therefore save you from building a container silo, and; using NSX to provide the networking services that containers need once you chain them into microservices spanning infrastructure in lots of places. The latter strategy seems to be biting and execs announced NSX now has an annual run rate of $1.4bn.

Gelsinger again said VMware believes network virtualization will be bigger than server virtualization and cited increased interest in the company's network function virtualization (NFV) wares as evidence. In that field, he said VMware-on-AWS seems particularly attractive to carriers, who fancy running NFV on the same cloud they use for other chores.

The CEO opened the call by saying he would not comment on the rumoured Dell/VMware acqui-merge with somersault, pike and twists. But CFO Zane Rowe did say that FY 2018 brought $400m in "synergies" as Dell helped VMware to sell its wares, $150m more than expected.

VMware's guidance for FY 2019 was 10 per cent growth, for a revenue target of $8.725bn. Things will start slowly with a $1.955bn Q1.

What's next for VMware? Execs said NSX, VSAN and end user compute are considered VMware's current growth products, with NFV and security product AppDefense poised to take off. On the company's earnings call CFO Zane Rowe mentioned that VMware is spending record amounts on research and development.

The Register hazards a guess that a decent slab of that R&D spend was made on edge computing, given this shout-out from last week about a $6m pool of grants that VMware will sling towards academics in the field. ®

*VMware adopted Dell's financial calendar last year, so skipped from FY 2016 to FY 2018.




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