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Cloud is now 5 per cent of VMware's business

Cloud is now 5 per cent of VMware’s business

VMware announced revenues for the third quarter this year were $1.52bn, an 18 per cent increase on Q3 last year. But the company also reported a 26 per cent decrease in net income and a sequential decline in the quarterly revenue growth rate, which VMware president and chief operating officer Carl Eschenbach said was because sales discussions are taking longer now that its cloud services are entering the picture more frequently.

Despite overall revenue growth VMware reported operating income for the third quarter was $242m, a decrease of 16 per cent from the third quarter of 2013, which it said reflected the AirWatch acquisition.

Net income for the third quarter was $194m, down 26 per cent from $261m in Q3 2013.

Despite the decreases Jonathan Chadwick, VMware’s chief financial officer said the company was pleased with the results, and particularly with the performance of its newer businesses in mobility, networking, storage and cloud.

In a call with press and analysts VMware president and chief operating officer Carl Eschenbach said the company did struggle in particular regions – mainly Russia, Japan, and Germany, where it most recently launched its vCloud Air public cloud offering.

“While in EMEA bookings grew, in Russia geopolitical tensions weighed on the bookings performance and we saw an over 50 per cent decline year-over-year. In a weak German economy we saw lower bookings than expected with our German sales leadership team now solidly in place we expect to see better bookings performance going forward,” he said.

Eschenbach also explained that bookings were taking longer because customers were now increasingly looking to include cloud within their broader product and service agreements.

“In Q3 I had indicated some of the larger ELAs and specifically net new ELAs are taking a bit longer to close because of the complexity of not just VMware, but the customer introducing the desire to have all of our products as part of the ELA, not just on premise solutions like the software defined datacentre, architecture and vCloud Suites, but also interested in vCloud Air, so that they can build an insurance policy into their agreements with us to leverage the public cloud in the future,” he said.

VMware chief executive Pat Gelsinger said the company is “feeling very encouraged” by the company’s performance of its cloud services portfolio including the vCloud Air network, AirWatch and its Workspaces cloud-based desktop as a service offering, but suggested the shift to cloud services would impact how the company reports revenue moving forward – a problem not unfamiliar to other large software companies like SAP and IBM.

“Overall these clearly are growth opportunities for us that come with a different business profile and ratable revenue model which is included in our understanding of our business going forward,” he said. “Seeing that 100 per cent year-on-year growth and now at approximately 5 per cent, [cloud] is becoming a more meaningful portion of our business.”

“You will see us speak more specifically in guide for 2015 about this aspect of the business as well,” he added.