VMWare has passed “Peak vSphere” – especially for the SMB

VMWare’s 2015 earnings call from late January of 2016 was enlightening, to say the least. The main take away from it for me was VMWare’s admission that the traditional server virtualization platform – vSphere based on servers plus switches plus SAN – has passed it’s peak and is significantly in decline from a new sales and license renewal perspective.  Quoting Pat Gelsinger (CEO VMWare) – “it’s been a big strategy of ours to sell no more naked vSphere

Here are a few quick quotes from that investor call that provide significant insight:

“we are seeing strong growth across our full portfolio of emerging products. We’ve recognized that our blockbuster compute products are reaching maturity and will represent a decreasing portion of our business going forward”

Translation – We have passed the peak of the legacy vSphere based  approach and our newest bits – vSAN, NSX, and airwatch are what is providing our growth

“all of the top ten deals contained EUC, nine of the top ten deals contained NSX and six of our top ten deals contained vSAN”

Translation – The hyperconverged approach of eliminating the SAN by moving its functions into the kernel along with network functions, etc. are our path forward.

“Compute license bookings declined in the low-double digits year-over-year and management license bookings grew in the low-teens year-over-year in Q4. Our newer high growth SDDC product, which includes NSX and vSAN grew license bookings robustly. “

Translation – Due to companies discovering alternate paths to modern compute virtualization, our vSphere license bookings are down by double digits. Only those offerings that are closer to a Hyperconverged approach are showing significant growth

“for a number of years we’ve been expanding our product portfolio outside of compute, and it’s been a big strategy of ours to sell no more naked vSphere as we got into these new products and we’ve talked about a transition that would happen. It wasn’t a matter of, it was a matter of it, it was really about when we’d start to see our newer products offset some of the decline we saw in our compute business.”

“the ongoing deceleration standalone vSphere was a little bit more pronounced in Q4 “

Translation – The servers+switches+SAN+hypervisor market approach is dying. The stand alone vSphere market is dying, we have to move to the new hyperconverged future and leave the past behind

It is rare to see such a frank set of comments in an earnings call. It is also rare for a company to come right out and say that they are actively moving away from what has been their flagship product in such an abrupt manner. For the SMB, the lesson is this – The old infrastructure approach is not surviving moving forward, and it is time to modernize into a hyperconverged infrastructure.

http://seekingalpha.com/article/3836736-vmware-vmw-ceo-pat-gelsinger-q4-2015-results-earnings-call-transcript?page=3

 

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