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How More Research and Development Could Help VMware

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Importance of R&D

VMware (VMW) considers it extremely important to upgrade its product portfolio by investing in R&D (research and development) on a regular basis. Those expenses may not only give the company a competitive edge over its competitors but also help it gain market traction.

VMware’s popular products, including NSX (Network Virtualization) and vSAN (virtual storage area network) continue to gain higher adoption across various enterprises. In fiscal Q2 2019, those two products had 16 deals combined. The company has signed 13 contracts worth ~$10 million.

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Growing R&D trends

From the graph above, you can see VMware’s R&D growth for the last five quarters. During that period, R&D grew at a CAGR (compound annual growth rate) of 3%. In the last five quarters, the company has spent ~$2.3 billion on R&D with an average of $454 million each quarter.

In the last five quarters, it spent an average of 22% of its total revenue on R&D each quarter. That’s high compared to its peers Red Hat (RHT), Citrix (CTXS), and NetApp (NTAP) with R&D as a percentage of revenue of 15%, 13%, and 20%, respectively.

VMware exited fiscal Q2 2019 with R&D costs of $481 million against $428 million in the same period last year. At the end of the second half of fiscal 2019, its R&D costs were $934 million compared to $877 million in the same period of fiscal 2018.

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