VMware Q2 revenue up 17% as investor pushes for spin-off from EMC

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VMware Q2 revenue up 17% as investor pushes for spin-off from EMC

Archana Venkatraman

Virtualisation and cloud provider VMware has reported a 17% year-on-year revenue growth to $1.46bn for the second quarter of 2014 amid news that EMC investors are calling for the storage giant to divest itself of VMware.

Software maintenance accounted for more than half (50.7%) of its total revenue for the quarter ended June 2014, followed by licensing revenues at 42%. But VMware's professional services portfolio, which includes its software-defined datacentre services technologies, accounted for just 7.3% of total revenues in the second quarter, marginally lower than in the same period last year. (7.9%).

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VMware’s Q2 earnings come amid a Wall Street Journal report that one EMC investor, Elliott Management Corp, is flexing its muscle and suggesting that EMC should spin off VMware. Elliot is EMC’s fifth largest shareholder with a stake of more than $1bn in the data storage company.

Parent company EMC is scheduled to release its earnings report on Wednesday.

In its Q2 earnings report, VMware beat market expectations. Its non-GAAP earnings were 81 cents per share on a revenue of $1.46bn, while Wall Street was expecting earnings of about 79 cents per share on a revenue of $1.44bn.

The operating income for the second quarter was $200m, 26% lower than the second quarter of 2013. The company blamed the decrease on its AirWatch acquisition. In January, VMware said it is buying the mobile device management (MDM) specialist for $1.5bn to boost its end-user computing offering.

One of its second-quarter highlights include Gartner’s positioning of VMware in the Leader quadrant, ahead of Microsoft, for the x86 server virtualisation infrastructure market.

“We continue to see strong performance across our business, further evidence that VMware is uniquely positioned as IT transitions from client server computing to the mobile cloud era,” said Pat Gelsinger, chief executive officer, VMware.

VMware and EMC shareholders and investors are keen to know whether the two companies will split up. Both EMC and VMware have been under tremendous pressure – with EMC trying to stay relevant with its traditional storage offering in the era of flash storage, commodity storage pods and the cloud, while VMware battles virtualisation saturation and enterprises’ move to infrastructure as a service (IaaS) models.

In the Gartner Magic Quadrant report, analysts note that VMware continues to dominate the market, and customers remain very satisfied with product capabilities and support. “However, concern over price and vendor lock-in remains,” said analysts Thomas Bittman, Mark Margevicius and Philip Dawson. 

“VMware is still enjoying good growth, but growth is harder, due to both increasing market saturation and competitive pricing pressure.

“An emerging concern is the rapid growth of IaaS cloud providers, especially AWS (based on open source), used mainly for new workloads that are designed for cloud computing. While VMware has a dominant share for existing enterprise workloads, its share of the newer cloud workloads is much smaller,” the analysts said.

In an effort to increase its IaaS offering called vCHS, VMware has recently launched a second datacentre in the UK.


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