There’s talk around the web today is about how, despite huge revenue and income gains in the third quarter, VMware (s VMW) can’t sustain this type of growth. Part of this stems from a brief commentary by Technology Business Research (TBR) analyst Jessica Breen, who believes the rigors of becoming a bigger business and the maturation of virtualization and cloud computing will limit future growth. Such analysis, however, ignores several realities regarding VMware’s cloud prospects.
As I wrote in a pre-VMworld report (subscription required) on VMware’s “cloudy ambitions,” opportunities abound, and VMware has its fingers in all of them. Public or private; IaaS, PaaS or SaaS; VMware has an offering. Furthermore, although competitive hypervisors are definitely eating away at market share, there’s still plenty of business to go around. Microsoft (s MSFT) Hyper-V and Citrix (s CTSX) XenServer have been growing far faster in terms of license revenue growth, but that doesn’t mean VMware can’t still grow. Have you seen the pick-up in adoption for Cisco (s csco) UCS and VCE Vblock appliances? There’s VMware, tied to each one of those purchases.
But cloud computing remains the elephant in the room in terms of potential revenue. That market is so nascent that no one really knows who will prevail and how much money that will bring in, although virtualization/cloud management software means higher margins than do hypervisor licenses. Who’s to say what it will mean for revenue if VMware’s approach to internal clouds attracts a large number of customers, or if its cadre of vCloud service-provider partners — a list that now includes Verizon Business (s vz) (with offerings targeting both enterprises and SMBs) — start to rake in users. Everyone thought Amazon Web Services (s amzn) wasn’t operating an overly profitable business, but UBS estimates showing high profits and sustained exponential growth changed a lot of minds.
My point: It’s too early to tell whether VMware can keep on growing like it is right now. Even if it loses hypervisor market share, and its cloud market share never reaches such stratospheric levels, there’s no guarantee of a tight correlation to revenue. Throw a few more acquisitions into the mix, or the prospect of VMware getting acquired itself, and I’d say you have a crapshoot in which the only question is how much money VMware will earn. Even if it falls off, I don’t think you’ll hear many complaints about a meager 20 percent growth rate.
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