VMware's Multi-Cloud Strategy And Broader Portfolio Look To Be Paying Off

VMware's strategic shift toward delivering a comprehensive portfolio supporting multi-cloud infrastructure and a broad array of use cases delivered another strong quarter for the virtualization leader.

CEO Pat Gelsinger told investors Thursday in a first quarter earnings call that the company's 14 percent year-over-year growth -- to $2.01 billion in revenue for the quarter ending April 31 -- was driven by products and services beyond its traditional vSphere virtualization platform.

Earnings-per-share of $1.26 beat Wall Street's expectations of $1.14, lifting the stock4 percent to $141.60 in after-hours trading.

[Related: VMware's Multi-Cloud Strategy Leads To Record Full-Year Revenues]

VMware's channel partners in past years were unsure of how to engage with the company's increasingly diverse portfolio, but have now caught on, Gelsinger told investors.

At the recent VMware Partner Leadership Summit, "the discussion is how can I go faster with you," Gelsinger said. "Response from channel partners is really tremendous."

But "we must have more qualified capabilities" from partners, he said. The company increasingly needs partners with delivery and services expertise that can present, implement and get into production comprehensive solutions that leverage the larger portfolio and ecosystem.

With the introduction earlier this month of four new services competencies, VMware has begun the process of discerning partners who can simply deliver vSphere from those enabling new use cases with expertise around multiple VMware solutions, Gelsinger said.

Jenni Flinders, VMware's new channel chief, is also focusing on enabling new classes of channel partners, with more emphasis on high-end systems integrators, born-in-the-cloud solution providers and network transformation partners.

More partner competencies will come, Gelsinger said.

"Those are some things Jenni is driving for us," Gelsinger said. "We're excited to have her as part of our leadership team."

Gelsinger said VMware is increasingly focused on selling complete solutions to customers across four categories: private cloud with the full Software-Defined Data Center stack, public cloud, transforming networking and security, and workplace transformation with products like Workspace ONE.

Networking is an increasingly vital component of the business, and the NSX product has expanded into portfolio of related solutions, from NSX Data Center, NSX SD-WAN by VeloCloud, NSX Cloud, NFV for telcos, and AppDefense to secure them all.

"Long-term, we continue to see the networking opportunity to be bigger than the compute opportunity. It's just pervasive," Gelsinger said.

But NSX is "still largely a high-end product," he said. "We still haven't really brought it into the mainstream offering."

VMware is working to create versions of NSX better suited to the mid-market, where it can be presented to hundreds of thousands of vSphere customers.

"We do see this as something that's critical to our future," Gelsinger said.

The VeloCloud SD-WAN product illustrates that strategy with more than 2,000 customers. It’s a more-consumable product, he said, that has broader appeal by filling a narrower use case.

And NSX is attacking many other use cases, including containers, multi-cloud, hybrid cloud, and security.

"NSX for the long-term has a larger market opportunity than compute," Gelsinger said.

The hyper-converged infrastructure business, anchored by vSAN virtual storage, presents another major growth opportunity, with a total addressable market between $6 and $8 billion—an estimate VMware put out a couple years back that it still maintains.

The "storage piece" itself is a large market, but customers are increasingly buying VxRail hyper-converged appliances, with compute, storage, and management products bundled.

"That's the market shift we're seeing," Gelsinger said. "People are no longer putting the tinker toys together themselves. They're saying give me the solution."

The virtual networking product, stand-alone and as a component of VxRail, is particularly suited to benefit from synergies with parent company Dell—one of the reasons that business is growing at 70 percent.

"Dell is an effective channel for us in vSAN and our hyper-converged offerings as a whole," Gelsinger said. "We're attaching vSAN to every one of our compute nodes in the future."

Public cloud partners play into a broader strategy entailing delivering consistent infrastructure and consistent operations.

VMware's two "foundational relationships" have been with Amazon and IBM, he said, but the company is exploring more opportunities, and working closely with Microsoft and Google as well to deliver various services.

In its first quarter, the company inked a deal to bring NSX to Azure, and VMware will expand support of its management products on Microsoft's cloud, he said.

VMware isn't yet presenting adoption metrics around VMware Cloud on AWS, but will do that at some point when it hits key milestones, the CEO said.

Gelsinger said VMware is pleased with "acceleration in customer counts, customer usage" around the groundbreaking partnership with AWS.

The VMware Cloud Provider Program, an ecosystem of providers running VMware solutions of which "IBM is central", saw strong performance in the first quarter, growing over 30 percent, he said.

Customers want that program to expand to have more options for running VMware environments across regions and public clouds.

"We feel a real pull from the market overall in that category," he said. "You can see us filling in more of those service offerings with the other clouds."

Gelsinger also discussed containers.

"Our strategy is fundamentally to run containers in VMs. That's been essential," he said.

VMware sees the two technologies as complementary, and its core strategy is to make it easy to use both together.