After SpringSource and Zimbra, VMware now looks for middleware

Posted by Staff   |   Tuesday, January 26th, 2010   |  

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Yesterday VMware announced its Q4 2009 earnings. During the call, besides the numbers that we report below, the company’s CEO Paul Maritz gave a couple of very interesting answers that hint at the future steps the company will take in terms of acquisitions and new products.

Despite the whole 2009 license revenue declined 13% ($304M in Q4), the company reported a nice 8% growth and beated analysts estimates.

The software maintenance portion of our services revenues was $246 million, up 53% compared to last year, while professional services revenue was $58 million, up 47% from last year.

VMware also announced almost 20,000 new customers won in the second half of 2009.
US revenues increased 15% year-over-year to $315 million and grew 28% sequentially. International revenues were $293 million, an increase of 22% compared to last year and up 20% sequentially. International revenue growth was driven primarily by improved demand in China, Japan, Brazil and throughout Europe.

In Q4 2009, R&D expense increased sequentially $6 million to $113 million largely due to the inclusion of SpringSource for an entire quarter
At the end of the quarter the full time VMware headcount was approximately 7,100 people, after adding 400 employees total during the whole 2009.

Interestingly enough, the company is very cautious about its performance in the desktop virtualization space:

…In Q4 60% of the proof of concepts that our presales technical team conducted were centered on virtualizing the desktop.

Though we are expecting strong revenue growth from desktop in 2010, it is still off a relatively small base. We are positioned well and expect to win our fair share of this opportunity but we remain cautious that notable revenue contribution from the desktop area is still a ways off.

This can be read in many ways. One is that desktop virtualization is not quite here yet, despite the strong marketing effort that the company is now refocusing on cloud computing.

During the earning call VMware also offered a glimpse of its vision around the recent Zimbra acquisition:

Question from Brent Williams – Benchmark
I wanted to focus in on Zimbra for a second, how much of that is an opportunity to deliver virtualization right away? I understand email has such scalability problems across all sizes of enterprises but can you give a sense of how much of Zimbra’s business is on sort of hosted offerings, how much of it is on on premises offerings, so we can see just what kind of pull there is going to be for virtualization over the shorter term. Then relatedly, what is the employee count at Zimbra currently.

Answer from Paul A. Maritz
I’ll take the first point and then Mark can update employee count. The majority of Zimbra’s revenues today is coming from on premise operations although the majority of their mailboxes would come out of service provider operations. We actually think there is opportunity on both. That being said, as Mark implied in his guidance, the revenues levels in the near term are relatively small, it’s a small base that we’re building off of.
We see Zimbra as both an opportunity and a strategic move because this will allow us to show how our underlying infrastructure will handle workloads at any level of scale and provide a readymade solution that both our own channels and our service provider channels can take to market.

Answer from Mark S. Peek
There are about 125 people at Zimbra.

The most important information anyway comes from the following answer about the SpringSource integration with the vSphere platform, which gives an idea of what sort of acquisition target VMware is currently watching:

Question from Brent Williams – Benchmark
You mentioned integrating SpringSource and vSphere, I have been looking at SpringSource for some internal development projects that we’re looking at to power our firm and even though I’m pretty much an engineer and an IT guy in some parts of my job, I’m sort of mystified what exactly does that look like? Can you give me some more color on how that is going to go?

Answer from Paul A. Maritz
We think there’s an opportunity to have new middle ware offerings that essentially embody the SpringSource development model at the top end and which bind to the vSphere deployment and resource scheduling model at the bottom end. So, what you’re missing today is sort of the layer of middle ware in between that will glue those two things together and that’s what’s coming down the pike.

Thanks to Seeking Alpha for the call transcript.


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