Menu
Next for VMware? Desktop virtualization takes off in 2010

Next for VMware? Desktop virtualization takes off in 2010

What strategy news can you expect from VMware at the upcoming VMworld show? One hint: VMware's COO sees 2009 as the year of the data center and 2010 as the beginning of the era of desktop virtualization.

Financial Pressures VMware doesn't have the time to wait, however, so it will continue to focus on its data-center-focused products and increasing penetration within existing customer organizations to increase revenue, Nielsen says.

VMware is under unaccustomed pressure from Wall Street, following two consecutive disappointing earnings announcements. July 22 the company announced a drop in net income of 37.8 percent compared to a year before, due to flat revenue and the increasing cost of sales and R&D.

VMware stock rose on the news because the results matched analyst expectations. But tech analysts called the results misleading. Though total sales dropped only 3 percent, sales of software licenses dropped, a situation which was only partly offset by an increase in maintenance and service revenue.

Sales of enterprise licenses made up 15 percent of sales compared to 20 percent a year earlier, according to Mark Peek, the company's chief financial officer, who called the corporate IT sales environment challenging.

In April, VMware increased its revenue by 7 percent compared to a year earlier, but did it by increasing maintenance and services revenue by 48 percent to make up for a drop of 12 percent in license sales.

Numbers like that could push the company toward a strategy designed to increase maintenance and professional services revenue and away from expensive research and development, especially of products such as VMware View, which has little near-term chance of increasing overall revenue, says Gordon Haff, high-performance computing infrastructure analyst at Illuminata in Nashua, N.H.

That's not a good strategy for a company in a dynamic and relatively young technology area, however, Haff says.

"Companies would always like to sell more licenses than services," Haff says. "Services might be profitable, but not as much as the incremental sale of software licenses, which are much lower cost than delivering services."

Despite the concerns of some Wall Street analysts, the market for server virtualization is not close to saturation, either in large companies or small- to mid-sized companies, according to Chris Wolf, data-center strategy analyst at The Burton Group.

"There is still a lot of room for growth, and customers are still largely happy with them," Wolf says. "One client of ours told me they were doing some hardware refreshes, moving from servers with two processors to six, and because the restrictions on VMware licenses cover six-core systems, it wasn't costing anything additional in licensing. They loved that, but it might not have been as good for VMware revenues."

VMware has been increasing its market share among small to mid-sized businesses as well, Rose says.

That's partly due to greater marketing to SMBs and partly due to pricing that, in some cases, is lower even than competitors that trade on their comparatively low cost, Wolf says.

"We had a client that bought a VMware setup for something like $2995 when the comparative Citrix base price was over $5000, so VMware's been working hard on that aspect," Wolf says.

VMware continues to wrestle with whether to charge by the core, by the number of VMs deployed, or other measures, Nielsen says. For now the company plans to stick with current pricing, which encourages enterprise customers to use as many virtual machines as they want as a way to spread the use of virtual servers through the organization.

Join the CIO Australia group on LinkedIn. The group is open to CIOs, IT Directors, COOs, CTOs and senior IT managers.

Join the newsletter!

Or

Sign up to gain exclusive access to email subscriptions, event invitations, competitions, giveaways, and much more.

Membership is free, and your security and privacy remain protected. View our privacy policy before signing up.

Error: Please check your email address.

Tags VMwarevirtualisation

More about Burton GroupCitrix Systems Asia PacificIlluminataMaritzNielsenRoseVMware AustraliaWall Street

Show Comments
[]