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What Are VMware’s Latest Business Drivers?

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Oct. 12 2018, Published 12:49 p.m. ET

Key catalysts

VMware (VMW) looks to be strengthening its strong foothold in the network virtualization space with its strong product portfolio. Moreover, the company’s approach to its cloud business has prompted its clients to increase its investment in vSphere products. Plus, the availability of VMware Cloud on Amazon’s (AMZN) AWS (Amazon Web Service) platform provides confidence to its customers in terms of flexibility and better usage. The company also offers premium vSphere products called vSphere Platinum, which is powered with built-in security called AppDefense.

The next driver for the company is the VMware Cloud provider partner business, which is maintaining an average growth rate of 30% per year. At the end of the second quarter of fiscal 2019, the virtualization solutions provider has more than 4,000 partners.

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Upcoming opportunities could drive business

The graph above shows the license revenue growth for VMware in the last five quarters. During the period, it grew at a CAGR (compound annual growth rate) of 4.8%. The license revenue for Q2 of fiscal 2019 stood at nearly $900 million, up 20.7% YoY (year-over-year).

The company is also targeting underpenetrated markets like the state local education centers and new SMB (small and medium business) clients with its vSphere products where the virtualization is below 50%, thus creating more opportunities for the company and its products.

VMware is also eying some lucrative areas like the telco and the edge cloud as areas where its virtualization business could get a real boost. Most telecom players are already virtualizing their networks, but it is a long process and could take over ten years. The edge cloud market will likely take some time to pick up.

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