VMware Earnings, Virtual Vendor Activity a Bright Spot

By Amy Newman (Send Email)
Posted Jan 28, 2009

VMware has been slung with a lot of mud as late. Increased competition and internal issues have marred its status as market leader a bit. It remains a force to be reckoned with, however, as is evident in the earnings report it released late Monday.

Virtually Speaking: VMware's earnings announcement offered an oasis in a desert of gloom this week, even if it was a bit of a mirage. Meanwhile, Commvault, Hyperic, and Reflex unveil virtualization products, demonstrating the marketplace is far from stagnant.

Granted, the earnings reported were non-GAAP (in other words, it excluded certain expenses — stock-based compensation, a write-off in process R&D, and employer payroll tax on employee stock transactions among them). When these things are included, the picture is less pretty, and given the seemingly standard reservations, more problematic.

VMware's non-GAAP net income for the quarter was $142 million, an increase of about 38 percent year-over-year compared to 2007. For the year, non-GAAP net income was $416 million, an increase of 41 percent over 2007's $295 million.

When GAAP is followed, net income shrinks to $111 million for the quarter and $290 million for the year. Year-over-year growth is present by this calculation as well, though not nearly as dramatic, with net income coming in at $218 million for 2007.

It is doubtful that virtualization will pave the way to economic recovery, and certainly no one is claiming this. Nor will the technology save enterprises from doom, despite what some of the vendors claim. IDC, of course, predicts 2009 will be a good year for virtualization, but that doesn't mean it will be a revenue-generating one.

In fact, if VMware is a bellwether, it will be a rather ugly one: During its earnings call, the company warned of a bad first quarter and issued reservations, citing an anticipated 8 percent slide in quarterly revenue to $475 million.

And yet, based on customer adoption rates and products coming to market, it's clear the virtualization market continues to grow. This week alone, at least three companies announced offerings related in some way to virtualization.

  • Commvault released version 8 of its backup and recovery software, Simpana. While Commvault is a storage vendor, it has always had an eye on the virtual. It has found that as companies add more virtual machines and grow their virtual infrastructure, "they need more deduping, which often means adding more hardware for throughput, etc.," Dipesh Patel, senior product marketing manager told ServerWatch. Hence, the capability to dedupe to tape at the block-level has been added. Translated into virtualization terms, this means it can also be done at the appliance level.

    Commvault does indeed have a virtual presence. Vice President of Product and Segment Marketing Michael Marchi told ServerWatch, "25 percent of customers are using Simpana in virtualized environments. More and more of our deals are with Fortune 500 companies, typically for back-up archived environments and multiple sites. The trend is larger, bigger deals in larger customers."

    Virtual server protection has also been added in this version, along with advances in recovery management, data reduction and content organization.

  • Hyperic meanwhile souped up its reporting capabilities with a new product, Hyperic Operations IQ, a business intelligence platform designed to go "from the cube to the office," Matt Stodolnic, vice president of marketing for Hyperic, told ServerWatch. This new systems intelligence reporting tool is designed to give CIOs and CTOs detailed reporting and analysis on critical data in a format they can use and understand.

    IQ is meant to be plug and play. It ships with built-in reports that are ready to go after installation, as well as a custom report builder with a drag-and-drop interface.

    Jaspersoft's Business Intelligence software is the underpinnings of Hyperic Operations IQ. It is tightly integrated into Hyperic's flagship offering, HQ Enterprise. Hyperic is so committed to the Jasper platform, it even lured away the CTO of Jaspersoft so he could develop an overlay for Hyperic's reporting engine.

  • Reflex Systems updated Reflex Virtualization Management Center (better known as VMC), adding performance monitoring of virtual machines and enhanced web-based reporting capabilities to its virtual infrastructure planning offering.

These vendors have one thing in common: They are counting on companies to be willing to spend money to save money. It's a formula that has worked before. Based on unscientific sampling, however, many are organizations are jumping aboard the virtualization ship without a compass. Some virtualization endeavors will, at best, stall. Some, no doubt, will turn around and return to a physical infrastructure that the disorganization and sprawl of their virtual mirrored. Others, most likely smaller shops, will abdicate responsibility and opt for the cloud. A third group, however, will solider on, committed to virtualization. These companies will need products to manage the sprawl, report on what they are doing, offer and effective backup stratagy and more.

Many enterprises, of course, prefer to not purchase and manage such functionality piecemeal. For now, this is the only way. But as Hezi Moore, CTO and founder of Reflex, told ServerWatch, Reflex is not out to compete with CA, BMC or the other major physical infrastructure vendors. Many of Reflex's clients are in fact using these solutions to manage their physical infrastructure. The problem, he said, is that the model is a decade old.

"The large companies providing physical infrastructure management don't have a solution for the virtual infrastructure," Moore said. "They don't have the capability to track virtual infrastructure [the way Reflex does]. Hopefully one of those days, one of those guys are going to acquire us."

When that functionality is absorbed the virtualization arena will have simultaneously arrived and disappear.

Amy Newman is the managing editor of ServerWatch. She has been covering virtualization since 2001 and is coauthoring a book about virtualization that is scheduled for publication in September 2009.

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