Cloud And Virtualization Combo Pushes VMware To $5 Billion Heights
Server virtualization giant VMware, majority-owned by EMC, had a banner year, punching through the $5 billion mark in total revenue for 2013. In fact, the company posted $5.21 billion in sales, up 12 percent from 2012. Earnings were bolstered by renewal contracts and demand for new management and automation software tools
As part of its latest financial statement (PDF), VMware also reported slightly better-than-expected quarterly profit and shared an optimistic outlook for 2014. VMware's fourth quarter earnings came in at $335 million, up 62 percent, on revenue of $1.48 billion, a 15 percent increase year over year. Net income for the entire year was $1.01 billion, up 35 percent, and VMware's operating margin swelled to 25 percent from 19.5 percent. Profits are growing faster than sales, and this is what every company likes to see.
VMware has been bundling its core vSphere virtualization software and vCenter management tools with newer vCloud cloud management offerings and the strategy appears to be paying off. The software maker managed to beat analyst expectations, albeit narrowly, while going through a management change, a company reorganization, and the spinoff of Pivotal, its subsidiary devoted to application frameworks, Hadoop, and parallel data warehouses. Its management tools for the cloud are selling like hotcakes despite the fact that OpenStack, Windows plus System Center, CloudStack, and other alternatives are out there. President and chief operating officer Carl Eschenbach affirms that management and automation was "once again" the fastest selling product group in Q4. VMware does not break out its revenues by product group, so we have no idea how much revenue the core vSphere server virtualization products or the vCloud extensions generate.
On the company's earnings call (transcript available here), VMware CEO Pat Gelsinger added perspective and context to the numbers.
"Over the course of 2013, we did exactly what we said we would do in every aspect of the business, including financial performance, attracting and retaining top talent, and, most importantly, bringing breakthrough innovation to market that provides strategic business advantages for our customers," Gelsinger stated.
"With our strong performance in Q4, and in 2013 as a whole, we have accelerated VMware's growth and positioned the company well for a strong 2014," he continued. "We now have significant customer momentum across all three of our strategic priorities as we continue our focus on leading the industry with the software defined data center, hybrid cloud, and end user computing."
The company has set its 2014 full-year projections at between $5.94 billion and $6.10 billion, akin to or slightly higher than analyst expectations. The forecast for the full-year operating margin is 31 percent. Going further out, the company anticipates healthy growth of 15 to 20 percent for the 2015 to 2016 timeframe.
VMware also said that it expects operating margins to decline in the first and second quarters due to the $1.54 billion AirWatch acquisition, which was announced last week. AirWatch gives VMware a stack of management and security software for mobile devices and comes a year and a half after VMware moved into the software-defined networking space with its July 2012 acquisition of Nicera for $1.26 billion. VMware ended the year with $2.3 billion in cash and $3.87 billion in short-term investments and has no debt. So it can do other acquisitions at its whim – as long as Wall Street doesn't start asking for funds to be distributed through share buybacks or dividends. VMware doesn't currently pay a dividend to stock holders.