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.

What Factors Drove VMware’s 2015 Growth?

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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