2 Nov

VMware Defends Its Decision to Sleep with the Enemy

WRITTEN BY Ruchi Gupta

VMware Cloud on AWS emerges from the partnership

On its 3Q16 earnings call, VMware (VMW) calmed investors, saying that partnering with Amazon (AMZN) wouldn’t destroy its core business. The companies have come up with a product called VMware Cloud on AWS, which will make it easier for companies to run their systems on both VMware’s hardware and Amazon’s cloud, better known as Amazon Web Services (or AWS).

VMware Defends Its Decision to Sleep with the Enemy

Some investors and analysts have been skeptical about the VMware-Amazon deal, fearing that VMware could end up handing over its customers to Amazon. However, VMware insists that its partnership with Amazon will actually help it to unlock more growth opportunities, as it will greatly extend its platform.

VMware’s revenue of $1.78 billion in 3Q16 rose 6.3% year-over-year (or YoY), beating analysts’ consensus estimate of $1.76 billion. Gains in the Services segment backed the company’s strong quarter.

Resetting the reporting schedule

The chart above shows VMware’s revenue for the last five quarters leading up to 3Q16. VMware posted adjusted EPS (earnings per share) of $1.14, rising from $1.02 in the same quarter last year and coming in above analysts’ consensus estimate of $1.10.

VMware is set to alter its reporting schedule to align with Dell’s, whose first quarter runs from February 4 to May 5. Dell acquired VMware’s parent, EMC Corporation, for ~$60 billion.

Focus on large corporate clients

Zane Rowe’s CEO, Pat Gelsinger, said that VMware Cloud on AWS would initially be aimed at large enterprises. Over time, however, it would start targeting smaller businesses. The product will be available starting in mid-2017.

For Amazon, the partnership with VMware strengthens its position in the cloud computing market, in which it’s trying to stay ahead of rivals Microsoft (MSFT), Alphabet (GOOGL), and Oracle (ORCL), among others.

Before the partnership, VMware had declared war on Amazon as it tried to attract enterprises with hybrid cloud technology.

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