VMware’s near-term demand continues to be strong. Demand is currently characterized as trending at the high end of the company’s financial quarter to date. This high-end trending has given the VMware channel partners something to be very happy about as they close out another strong quarter. The third quarter closes on November third, and the feeling is that the partners should end up with strong financial reporting. Continued acceleration is predicted for 2018.
Channel partner commentary seems to highlight VMware’s vSAN and NSX specifically as the main driving forces. VMware’s vSphere license renewals, as well as the trade-up or license upgrades, also look to be major contributors to the quarter’s strong success. The interest in the license upgrades appears to be driven by companies looking to modernize their data centers and to get on the vSAN and NSX bandwagons. This has given the VMware partner community something to be optimistic about when thinking about their business opportunities going into 2018. The word on the street is that VMware channel partners are experiencing less competition from Dell now that the partners are using Dell for their distribution services. There was some concern and anxiety from the partner community about the Dell acquisition and the effects it might have on the community, but it appears those concerns are being addressed in a positive way. The non-Dell distributors have given indicators that they are perusing new VMware license activity in an effort to compete with the Dell distributors.
Feedback from the VMware channel partners continues to point to networking and storage as the most favorable area of growth. This matches my opinion that vSAN and especially NSX have the greatest growth quarter to quarter and year over year. More partners are now putting more dollars toward enablement around vSAN and NSX.
Let me take this opportunity to take a look at the different VMware stacks, compute, network, storage, management, and end user compute.
Compute: vSphere revenue is in line with revenue targets. With that, remember that VMware raised the vSphere outlook to grow in the low singles from the prior targets of low single declines. vSphere renewals are expected to play a less meaningful part of the revenue over the next twelve months following the improvement in renewals over the last four to six quarters
Network: NSX continues to outperform and, as such, appears to be a key product for which partners are making investments in headcount and training. Commentary has characterized the NSX opportunity as still being in the early stage given that the current market penetration remains pretty low
Storage: There appears to favorable demand for VMware vSAN. In fact, the entire hyperconverged infrastructure market as a whole appears to have accelerated over the last six months or so, and vSAN has been a beneficiary of the HCI growth
Management: Feedback on the VMware management products in its portfolio is more of a mix in this quarter, which follows prior trends. The vRealize platform continues to be an opportunity and a vehicle for encouraging customers to adopt VMware Cloud Foundations and the VMware hybrid cloud vision.
End User Compute: Partner feedback on end user compute continues to be favorable, following prior quarter trends. AirWatch is experiencing favorable demand in the current quarter as it continues on a path to displace BlackBerry. VMware has been also gaining market share vs. Citrix in the desktop market.
In my opinion, VMware’s current success can be attributed in part to the VMware Cloud on AWS solution. In preparation to be able to take full advantage of the new solution, companies are upgrading the vSphere licenses to the vRealize Suite. This is to get the vSphere version up to what will be needed and licenses for VMware NSX to integrate with the VMware Cloud on AWS. I believe that the new solution will really start to show dividends in late 2018. In the meantime, companies are positioning or upgrading their environments to better align with the current technology and/or with what is needed for the VMware Cloud on AWS.
I expect we will be hearing about additional VMware cloud partnerships with both Microsoft and Google to coincide with VMware’s recently announced Horizon desktop product with Microsoft Azure. I think there will be more significant cloud partnerships here in the near future for both Google and Azure. We will just have to wait and see how my expectations of acceleration in 2018 pan out.