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.
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.
More Hardware Insights
- The Critical Importance of High Performance Data Integration for Big Data Analytics
- Server Virtualization Gets Relief From Tivoli Storage Manager for Virtual Environments
- Top 10 Considerations for Getting Started with Virtualization
- Beyond Cost Savings: Four Compelling Reasons to Expand Virtualization of Your IT Environment
- Strategy: Hypervisor Alternatives: Putting the Squeeze on VMware
- SaaS 2011: Adoption Soars, Yet Deployment Concerns Linger
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.