VMware’s future is all about hybrid cloud, software-defined data center and end-user computing, and not so much about other things in its portfolio which will be “de-emphasized” this coming year, VMware CEO Pat Gelsinger told analysts on the company’s fourth quarter earnings call Monday night.
“I’ve learned the importance of prioritization and execution,” said Gelsinger, an Intel and EMC veteran executive who came aboard as VMware CEO five months ago. “We will focus first on a portfolio rationalization around the products our customers care most about. Our decision to commit our cloud application efforts to Pivotal is an example. And we will realign resources as we scale back in some areas,” he said.
The Pivotal Initiative — a spin off of VMware and EMC that will provide cloud and big data applications — will draw on VMware’s Cloud Foundry platform as a service, vFabric Java framework, and Cetas big data resources as well as Greenplum analytics and Pivotal Labs agile development expertise from EMC.
Key to VMware: Focus, focus, focus
Gelsinger did not name areas that will be subject to cutbacks, but CFO Jonathan Chadwick said Sliderocket will be sidelined. VMware bought SlideRocket and its slide presentation software in 2011. It was seen as a complement to the Zimbra productivity software purchased earlier from Yahoo. Depending on how VMware defines end user computing — my guess is it means desktop virtualization rather than desktop apps — I’d expect more cuts in this area. SocialCast might also be de-emphasized.
The company will also cut 900 jobs. “VMware added 6,700 people over three years and we’ll continue to grow, invest and hire in support of our focus areas,” Gelsinger said. “We expect to close fiscal 2013 up 1,000 people.”
There was no information given about the Pivotal Initiative spin out but Gelsinger promised more discussion of that will come at a March 13 at VMware EMC Strategy Summit in New York.
As for earnings, for its fourth quarter, VMware logged a profit of $206 million, or 47 cents per share, up from $200 million, or 46 cents per share, for the year-ago period. Revenue grew 22 percent year-over-year to $1.29 billion with adjusted net income at 81 cents a share, beating estimates of 78 cents per share on revenue of $1.28 billion.
More to the point though was low guidance for the upcoming quarter. VMware expects first quarter revenue to come in between $1.17 billion to $1.19 billion, short of consensus estimates of $1.25 billion and that spooked investors who drove the price down in extended hours trading.
Moving on from server virtualization
VMware is at a crossroads. It continues to lead the market in server virtualization but faces increasing competition there from Microsoft Hyper-V, and open-source Xen and KVM alternatives there. So it’s changing the conversation to network virtualization — a key underpinning of the aforementioned software-defined data center, according to VMware president Carl Eschenbach. VMware is counting on its $1.26 billion buyout of Nicira to give it a leg up in that network virtualization quest.