What Factors Drove VMware’s 2015 Growth?



VMware’s new offerings saw increased traction in 2015

Previously in the series, we discussed VMware’s (VMW) revenues and operating segment growth in fiscal 4Q15 and 2015. On a YoY (year-over-year) basis, VMW’s fiscal 4Q15 and 2015 revenues grew by 10% and 9%, respectively. In constant currency terms, fiscal 4Q15 and 2015 revenues grew by 125 basis points on a YoY basis.

VMware stated that the company’s transition towards new offerings like “NSX, End-User Computing and Virtual SAN” bore results. The company’s NSX and Virtual SAN segments recorded triple-digit growth in fiscal 2015.

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NSX, a part of VMware’s SDDC (software-defined data center) architecture, is a virtual networking and security software platform. VMware stated that NSX, which is its network virtualization business, grew more than 100% on a YoY basis, which led it to achieve an annual bookings run rate of $600 million. VMware’s end-user computing, AirWatch, grew 30% on a YoY basis, which brought the annual bookings run rate to $1.2 billion in 2015. VMW’s Virtual SAN, which is preferred by companies who want to keep their computing and storage in one box, reported a growth of approximately 200% on a YoY basis that enabled its annual bookings run rate to be over $100 million in 2015.

Developments in storage and hyper-converged infrastructure space

VMware’s Virtual SAN is the company’s virtual storage offering in the HCI (hyper-converged infrastructure) space. According to TechTarget, “A hyper-converged infrastructure product includes storage, servers and networking all in neat little nodes — but some assembly may be required.”

Hyper-converged infrastructure startups like Nutanix and SimpliVity could serve as a good fit for large server or storage vendors. Some of these vendors already have partnerships with global systems vendors like Dell, Hewlett-Packard (HPQ), and Cisco Systems (CSCO). Dell made news in late 2015 when it announced the proposed acquisition of EMC (EMC) for $67 billion. EMC controls an 80% stake in VMware. In a later part of the series, we will discuss the uncertainties hovering around VMW due to the Dell-EMC deal.

Investors who want broad-based exposure to VMware can consider investing in the iShares Russell 1000 Growth ETF (IWF). IWF invests ~13% of its holdings in application software and ~0.04% of its holdings in VMW.


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