Rumors of the layoffs spread late last week. VMware’s announcement today didn’t specify which areas the layoffs targeted, but vCloud Air seems an obvious candidate. VMware will be hiring in other parts of the company, adding resources to the higher-growth sectors of the business, officials said.
One of those sectors would be network virtualization, where NSX business doubled in 2015 compared to 2014, according to VMware. NSX bookings now exceed a $600 million per year run rate, officials said, which seems to indicate that bookings were around $150 million during the fourth quarter.
The layoffs, to be spread across the first two quarters of 2016, will result in a charge of $55 million to $65 million during those quarters combined.
vCloud Air Gets Reined In
VMware is “expanding” its cloud strategy, as CEO Pat Gelsinger put it during today’s earnings call, but the biggest change is that the company has shrunk its ambitions for vCloud Air.
Originally positioned as VMware’s public cloud service and a vehicle for customers to manage hybrid clouds, vCloud Air now offers specialty cloud services and software with characteristics unique to VMware, Gelsinger said. The vCloud Air service will still exist, but it sounds like the business’ main focus will be to provide techology for partner-run clouds.
The new strategy won’t require any additional capex investment in vCloud Air, but Gelsinger noted that the business will become “accretive” late in 2017 — implying it’s losing money now.
Three months ago, COO Carl Eschenbach said a “secular shift” was responsible for enterprises’ hesitation to expand their own data centers — they were debating which types of public or private cloud to rely on. It seems those decisions are being made, and they don’t match vCloud Air’s original trajectory. That’s not a surprise, given Amazon Web Services’ (AWS) dominance in the public cloud market.
The other aspects of VMware’s cloud strategy involve working with AWS and other cloud providers. For example, Gelsinger highlighted the use of NSX on public clouds as a way of connecting security endpoints. Later this year, VMware expects to offer an NSX-based service to create encrypted overlays crossing multiple public clouds, including AWS and Microsoft Azure. The capability is available on AWS in trial form, Gelsinger said.
When it comes to private clouds, VMware’s strategy remains the same: offering its set of software-defined data center (SDDC) products as the materials for building a private cloud. The fourth quarter saw a “significant increase” in customers deploying the full SDDC stack: compute, storage, networking, and network management, Gelsinger said.
The CFO Shuffle
The company and its parent, EMC, are both changing CFOs as well. Jonathan Chadwick is stepping down as VMware CFO and COO. VMware’s statement says he’s going to focus on his roles as a non-executive director for other companies. He’ll be replaced as CFO by Zane Rowe, effective March 1.
If Rowe sounds familiar, that’s because he’s CFO of EMC. His replacement there will be Denis Cashman, a 28-year EMC veteran, the company announced this afternoon.
For its fourth quarter, which ended Dec. 31, VMware reported revenues of $1.9 billion and net income of $373 million, or 88 cents per share.
For the same quarter a year ago, VMware reported revenues of $1.7 billion and net income of $326 million, or 75 cents per share.
Non-GAAP earnings of $1.26 per share outdid the Wall Street consensus of $1.25 as tallied by Thomson Financial.
In after-hours trading, VMware shares were down 5 percent at $46.90.