VMware Touts AirWatch Growth In Q1; Defense Department Deal Still On Hold

VMware, in its fiscal first-quarter earnings call Tuesday, said its AirWatch mobile-device management and desktop-virtualization products helped it beat Wall Street's profit expectations.

For VMware's fiscal first quarter ended March 31, the vendor reported revenue of $1.51 billion, up 11 percent year-over-year. Excluding items, VMware's net income rose 7 percent year-over-year, to $369 million, or 86 cents per share. Wall Street analysts were expecting $1.4 billion and 84 cents per share.

End-user computing was a bright spot during the quarter, with AirWatch license bookings growing more than 50 percent year-over-year, VMware President and Chief Operating Officer Carl Eschenbach said on the call. VMware acquired AirWatch last January.

[Related: VMware Launches Two Open-Source Projects In Play For Cloud Developers' Hearts and Minds]

VMware's desktop virtualization revenue grew 15 percent year-over-year during the quarter. And, as has been the case for the past several quarters, Eschenbach said, VMware is taking market share from "competitors," referring to market leader Citrix Systems.

VMware is increasingly focused on getting customers to buy its various products in suite, and engaging in enterprise licensing agreements is one way it's making this happen.

ELAs accounted for 30 percent of VMware's total bookings during the quarter, up from 25 percent from last year's Q1. Last quarter, ELAs accounted for 39 percent of VMware's total bookings.

VMware closed three ELA deals of more than $10 million during the quarter, and VMware's Eschenbach said these large deals "are increasingly including components" from VMware's entire product portfolio.

For example, eight of VMware's 10 biggest ELAs closed during the quarter included NSX, while nine out of 10 included both AirWatch and desktop virtualization, Eschenbach said on the call.

VMware is also seeing channel partners heeding its "no naked vSphere" mantra by selling combined offerings like vSphere With Operations Management (vSOM), said Eschenbach on the call.

However, the status of VMware's proposed $1.6 billion joint ELA (JELA) for the Department of Defense, which was canceled earlier this month, is still up in the air. The JELA would be VMware's largest-ever ELA by a significant margin, eclipsing the vendor's $44.8 million ELA for the U.S. Army in 2013.

"That's something the government controls," Eschenbach said of the DoD JELA.

Nonetheless, VMware is "very pleased" with its federal government business despite the delay with the JELA, said Eschenbach

"We had a very good quarter in federal, growing the business in the midteens, so we continue to power along despite [the JELA] being out there for multiple quarters," Eschenbach said.

VMware didn't shed much light on how NSX, the product from its $1.2 billion acquisition of Nicira in 2012, is faring. VMware didn't provide an update on the number of NSX customers it has or how much they're spending.

On the call, CEO Pat Gelsinger said using NSX as a network security technology -- which the vendor calls "microsegmentation" -- is catching on with customers. But NSX is also seeing adoption in OpenStack and bare metal environments as well, according to Gelsinger.

Gelsinger also touted VMware's cloud partnership with Google, under which customers will be able to buy Google object storage and other services for use in vCloud Air later this year.

"We believe this is a very strong offering to extend Google into the enterprise and enhance vCloud Air," Gelsinger said. "We think this is quite a marriage made in heaven."

PUBLISHED APRIL 21, 2015