VMware Says NSX Software-Defined Networking Sales Catching Fire, But Partners Want Less Expensive Versions

VMware shares are trading at their lowest levels in five years after the vendor shared fiscal 2016 guidance that fell short of Wall Street's expectations, but its NSX software-defined networking business is a bright spot in the gloom.

VMware's NSX business grew 100 percent year over year in fiscal 2015 and is now on an annualized bookings run rate of more than $600 million, compared with $200 million at this time last year, CEO Pat Gelsinger said Tuesday on the vendor's fourth quarter earnings call.

NSX bookings "more than doubled" during the second half of 2015 compared with the first half, and VMware now has more than 1,200 paying customers for NSX, VMware President and COO Carl Eschenbach said on the call.

[Related: VMware Says Newer Products Selling Well In Q4, But Weak Guidance Spooks Investors]

As a further sign that enterprises are interested in NSX, nine out of 10 of VMware's largest volume licensing agreements included the technology, according to Eschenbach.

Michael Feld, CEO of VertitechIT, a Holyoke, Mass.-based VMware partner focused on the health-care space, said some of his large hospital customers have bought "millions of dollars" of NSX.

Feld, who also serves as an acting chief technology officer for a number of hospitals, said NSX lets customers reduce staff and boost efficiencies by handling routing and switching functions in software. Customers also get the benefits of micro-segmentation, which refers to NSX's network security features, he said.

VMware, Palo Alto, Calif., said it's also seeing a growing number of partners investing in NSX sales and technical skills.

A VMware spokesperson said the vendor saw a 5x year-over-year increase in partners' obtaining its NSX competency in 2015, while the average deal size for top-level "Elite" partners grew threefold compared with the previous year. VMware now has more than 570 NSX partners worldwide.

While partners are impressed by NSX's momentum and by its security capabilities, a half-dozen partners told CRN this week that they'd like to see VMware introduce new -- and less expensive -- versions of NSX for smaller customers.

VMware currently sells NSX with a perpetual license or a term license. List pricing for a perpetual license starts at $5,996 per CPU, and list price for a term license starts at $34 per virtual machine per month.

"They need to tier the SKUs," an executive from one longtime VMware partner told CRN. "NSX isn't bad if you use all the features, but the vast majority of my NSX discussions are centered on security, and the price is just too high for distributed firewalling."

The VMware spokesman told CRN the vendor has no immediate plans for changing the pricing and packaging of NSX.

With VMware vSphere's business in a slow decline -- the vendor said compute license bookings fell "in the low double-digits" in 2015 -- Gelsinger said NSX, along with Airwatch mobile management and VSAN storage virtualization, look poised to pick up the slack.

Gelsinger also said VMware will introduce a version of NSX later this year that lets customers "create secure and encrypted overlay networks across public clouds," including Amazon Web Services and Microsoft Azure, as well as customers' data centers.

"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," Gelsinger said on the call.