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VMware to cut 800 jobs in cloud-focused company restructure

Virtualisation company VMware confident adoption of software-defined datacentres will offset softening demand for older products

VMware is to cut 800 jobs as part of a company restructure to counter the softening demand for its server virtualisation software as it shifts focus to newer product lines.

The virtualisation company’s outgoing CFO, Jonathan Chadwick, confirmed the news during a conference call, transcribed by Seeking Alpha, covering the details of its fourth quarter 2015 financial results.

The final quarter of 2014 saw VMware post a 12% year-on-year rise in revenue – in constant currency terms – to $1.87bn, along with an 11% increase in licence revenue to $825m.

The company’s full-year financials also saw it report a 12% year-on-year rise in revenue – on a constant currency basis – to $6.57bn.

The results were hailed by VMware CEO Pat Gelsinger as a “solid finish” to 2015. However, to capitalise on the growth it is seeing in its new product segments, the company is set to undergo a period of reorganisation.

“We are restructuring approximately 800 jobs over the course of the first half of 2016, and reinvesting the associated savings in field, technical and support resources associated with our growth products,” said Chadwick.

Demand shift

Gelsinger talked about the shift in demand away from the company’s core server virtualisation and hypervisor products as enterprises look to move more of their applications and workloads to the cloud.

Given that many of its customers have now gone down the server virtualisation route, Gelsinger said the company is using this position as a springboard to extend its position within the private cloud market.

vCloud Air

He added that VMware will continue to back its vCloud Air platform as a means of helping VMware users move their private cloud workloads to the public cloud as and when needed, although the focus of the strategy is set to be “narrowed” as time goes on.

This, he suggested, will be undertaken as part of VMware’s bid to distinguish itself and its public cloud partners from other competitors.

“The service will have a narrower focus providing specialised cloud software and services unique to VMware and distinct from other public cloud providers,” said Gelsinger.

“We will aggressively provide these innovations to our vCloud Air network partners, helping them accelerate their growth.”

NSX

The coming year will also see the company take steps to capitalise on the growing demand for its network virtualisation-focused NSX product, which acts as a control layer for virtual networking switches within software-defined datacentres.

“We had a stellar year growing NSX over 100% year-on-year and bringing our total annual bookings run rate to well over $600m,” he said.

“We believe our emerging networking business will be as transformative to the entire networking and security industries as vSphere has been to the compute and server industries.”

Read more about VMware in the cloud

The company reorganisation comes at a busy time for VMware, which is currently the subject of much industry speculation about its future, as its parent company EMC prepares to be bought by Dell for $67bn.

Since news of the deal broke, and despite numerous assurances that it is all still business as usual at VMware, the company has seen its share price drop by a quarter.

In an analyst note published on 27 January, Peter Roe, research director at analyst TechMarketView, said that, ignoring the uncertainty blighting the company at the moment, VMware is in “good shape" for 2016.

“The combination of VMware’s SDDC [software-defined datacentre], storage and networking capabilities, and its virtualisation and cloud management platform is driving good growth in enterprise-wide agreements and real progress in signing big deals,” Roe said.

“This positive situation enables 2016 guidance to be firmed up, with growth in new product orders exceeding the anticipated decline in the older-generation product revenue.

“Although Q1 will not sparkle due to seasonality, as investment continues, it looks like VMware’s fundamentals are in good shape for 2016.”

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