VMware Announces 800 Layoffs, Executive Shake-Up

As part of the decline in its on-premises computing business and shift to cloud and networking, the company is laying off 800 employees.

Mitch Wagner, Executive Editor, Light Reading

January 27, 2016

4 Min Read
VMware Announces 800 Layoffs, Executive Shake-Up

VMware is cutting 800 staff as part of a restructuring process that will see the company shift its attention away from its declining on-premises computing business towards its growing cloud and networking business.

It also announced a shake-up in its executive ranks, with Jonathan Chadwick stepping down as CFO, COO and executive vice president: He will be replaced by Zane Rowe as CFO, effective March 1. Rowe was previously CFO of VMware Inc. (NYSE: VMW)'s majority owner, EMC.

Growth in on-premises computing is slowing as the industry shifts to hybrid and public clouds, noted VMware CEO Pat Gelsinger during the company's fourth-quarter earnings call on Tuesday. That's reflected in VMware's own product portfolio, as its mainstay vSphere business is slowing down but software-defined data center products, including compute, storage, networking and management, are growing.

Networking saw a "stellar" year, with 100% NSX growth year-over-year for a total bookings run rate well over $600 million and VSAN total annual run rate well over $100 million, Gelsinger said.

And VMware is doubling down on cloud services. Later this year, the company expects to introduce products to create secure networks across public clouds, including Amazon.com Inc. (Nasdaq: AMZN) Web Services and Microsoft Corp. (Nasdaq: MSFT) Azure, whether the underlying infrastructure runs on VMware or not. This technology is currently being tested, Gelsinger said.

Chadwick is leaving to expand his advisory role working with companies as a non-executive board member. Rowe, the new CFO, has a resume that includes Apple Inc. (Nasdaq: AAPL), United and most recently CFO of EMC.

VMware plans to use the savings from layoffs to reinvest in field staff, technical staff and support for its growth products. The company will accrue a $55 million to $65 million GAAP charge in the first half to account for the layoffs.

Revenue for the fourth quarter rose 10% year-over-year, to $1.87 billion. Non-GAAP operating earnings were $534 million, or $1.26 a share, up 17% from the year-ago quarter. Analysts forecast earnings of $1.25 on sales of $1.85 billion.

VMware said it expects to post revenue of $6.8 billion to $6.9 billion next year, well below analyst expectations of $7.2 billion. It expects 2016 profit of a maximum $4.16 per share, below the $4.20 consensus.

VMware traded at $49.30, up 1.11%, in after-hours trading on Tuesday.

Dell Technologies (Nasdaq: DELL) announced in October that it will buy EMC Corp. (NYSE: EMC), which owns a controlling interest in VMware, for $67 billion. The market has not been kind to VMware in the transaction; VMware opened at $73.90 the morning the transaction was announced, October 12. (See Dell Buys EMC for $67B in Biggest Tech Deal Ever and Dell-EMC-VMware Merger Could Push Comms to Kids' Table.)

Want to know more about the cloud? Visit Light Reading's cloud services content channel.

A few days later, VMware announced the Virtustream cloud partnership with EMC, then backed out of that deal in December, leaving EMC to manage Virtustream alone. (See VMware, EMC Launch Cloud Partnership Amid Dell Acquisition – Confused Yet? and VMware Exits Virtustream Cloud Partnership .)

EMC announced an unspecified number of job cuts early this month, for charges of about $250 million. (See EMC Cuts Jobs Ahead of Dell Takeover.)

The shift to cloud that VMware is experiencing is part of the overall industry shift to New IP, as users demand greater agility, cost reduction and flexibility from networks.

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— Mitch Wagner, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profileFollow me on Facebook, West Coast Bureau Chief, Light Reading. Got a tip about SDN or NFV? Send it to [email protected].

About the Author(s)

Mitch Wagner

Executive Editor, Light Reading

San Diego-based Mitch Wagner is many things. As well as being "our guy" on the West Coast (of the US, not Scotland, or anywhere else with indifferent meteorological conditions), he's a husband (to his wife), dissatisfied Democrat, American (so he could be President some day), nonobservant Jew, and science fiction fan. Not necessarily in that order.

He's also one half of a special duo, along with Minnie, who is the co-habitor of the West Coast Bureau and Light Reading's primary chewer of sticks, though she is not the only one on the team who regularly munches on bark.

Wagner, whose previous positions include Editor-in-Chief at Internet Evolution and Executive Editor at InformationWeek, will be responsible for tracking and reporting on developments in Silicon Valley and other US West Coast hotspots of communications technology innovation.

Beats: Software-defined networking (SDN), network functions virtualization (NFV), IP networking, and colored foods (such as 'green rice').

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