When releasing its financials for Q2 2016, VMware certainly didn't appear to be a company that might be concerned about being marginalized by the hot open-source container development movement, as led by companies such as Docker, CoreOS and Google Kubernetes. Containers are the antithesis of hypervisors, VMware's family jewels.
But rest assured, this is a smart company that sees the IT business clearly in a 360-degree manner, and it knows there always will be new competitors to face. VMware has been a survivor despite the breakneck rate of change happening all over the sector.
The Palo Alto, Calif.-based virtualization giant on July 18 revealed its quarterly results, which beat Wall Street projections and included an 11 percent annual growth in revenues that amounted to $1.7 billion. Most container-making software companies haven't even moved into the black yet.
Six Percent Growth Lines Up With Guidance
VMware's growth in revenue was in line with the company's guidance offered at the end of the March quarter.
A little background on VMware vs. containers: Because VMware didn't get into the now white-hot container business quickly enough a couple of years ago—containers don't use hypervisors, which are VMware's front-line product—the next-best thing for the company to do was to make them functional inside its hypervisor-based vSphere system.
Following a considerable amount of R&D, VMware now supports any application in an enterprise—especially cloud-native applications—by extending its unified platform using open source-based Lightwave and Photon. These essentially serve to "cradle" containers running cloud-native apps supplied by competitors such as Docker and colleagues like Pivotal (which, like VMware, is owned by EMC).
Top-Line Growth Driven by Maintenance, Services
Following a trend seen during the last few quarters, VMware's top-line growth was mainly driven by maintenance and services revenues rather than software license sales. However, CEO Pat Gelsinger said, the software licenses division contributed meaningfully to improvement in company-wide gross margins.
VMware also reported that combined revenues of hybrid cloud and software-as-a-service (SaaS) offerings were up to 8 percent of net revenues, an increase from 6 percent of net revenues in the comparable prior year period. Gelsinger said this growth was driven by a 25 percent annual increase in vCloud Air Network bookings through the quarter.
As is typical, VMware recorded solid growth from network virtualization, hybrid cloud computing and SaaS offerings, which has been the baseline of its profits for more than two years.
NSX Sales Have More Than Doubled in a Year
VMware's NSX network virtualization platform had 1,700 paying customers by the end of Q2, up from 1,400 at the end of March. The company had a mere 700 NSX customers at the midpoint of 2015.
The company announced its intent to acquire cyber security and software-defined data center operations company ArkinNet in Q2 to help customers adopt its NSX platform faster. Additionally, the number of Virtual SAN customers increased to 5,000, up from 3,500 at the end of Q1 and 2,000 at the end of Q2 of last year.
As a result of the strong performance in the first half of the year, management revised its full year revenue and margin guidance. VMware said it is likely to witness limited growth in license revenues through both Q3 and for the full year, and that it expects services revenue to drive top-line growth.