VMware's New Tech Shows Promise During Q4, But Shift To Cloud Could Bring Turbulence

VMware's efforts to diversify its business with new technologies appear to be paying off, but the vendor is warning investors that its shift to the cloud subscription model might cause some turbulence.

VMware's NSX software-defined networking technology, VSAN storage technology, vCloud Air public cloud and Airwatch mobile device management products all saw promising results during the quarter, showing that the server virtualization giant is more than a one-trick pony.

COO Carl Eschenbach said VMware now has more than 400 paying customers for NSX, up from 250 customers in October. But for the second straight quarter, VMware didn't indicate how much revenue NSX is generating. In July, it said NSX had 150 customers and had generated $100 million.

Eschenbach did note that VMware's NSX bookings more than doubled during the second half of its fiscal year compared to the first half, constituting a $200 million annual bookings run rate.

In addition, nine out of VMware's 10 largest enterprise licensing agreements included NSX, and the Palo Alto, Calif.-based vendor also inked a $10 million NSX deal with a large global investment bank, said Eschenbach on the call.

"We are extremely pleased with our NSX performance this year," Eschenbach said.

[Related: VMware Adds NSX, Pay-As-You-Go Pricing To Lure Customers To Its Public Cloud]

VMware's VSAN storage technology passed the 1,000-paying customer mark during the quarter, and Eschenbach said sales are happening across a wide variety of industry segments.

Eschenbach said VMware's vCloud Air public cloud is also seeing "significant momentum," with thousands of customers purchasing the service from VMware and from its service provider partners.

VMware, which paid $1.5 billion to acquire Airwatch last January, is starting to see some fruits from that deal. Airwatch passed the 15,000-customer mark during the quarter and bookings topped $200 million in fiscal 2014, according to Eschenbach.

On the call, VMware CFO Jonathan Chadwick said license bookings for products other than standalone vSphere server virtualization grew 40 percent year over year during the quarter. But while VMware's newer products are generating interest with customers, they're also changing the way the vendor recognizes revenue.

VMware's transition to the cloud subscription model will mean it recognizes less revenue up front that it used to do with multiyear software licensing deals, and that could negatively impact fiscal 2015 revenue figures, Chadwick said.

VMware certainly isn't the only software vendor making this shift. CEO Pat Gelsinger said VMware plans to continually add new features and services to products like vCloud Air, which will, over time, attract a broader range of customers.

"As the platform becomes more robust, and more services become available, it will be more attractive to customers," Gelsinger said io the call. "We really see this as a reinforcing spiral."

For the quarter ended Dec. 31, VMware reported a profit of $326 million, or 75 cents a share, a slight dip from the $335 million and 77 cents per share it recorded during last year's quarter.

VMware's quarterly revenue jumped 15 percent to $1.7 billion. Excluding items, VMware earned $1.08 per share. Wall Street analysts were expecting $1.07 a share on revenue of $1.69 billion.

For its fiscal 2014, VMware's revenue rose 16 percent to $6.04 billion, but profit dipped 13 percent to $886 million, or $2.04 per share. VMware said the results were impacted by ongoing payments for its Airwatch deal.

PUBLISHED JAN. 27, 2015