VMware had a lot to say Thursday, reporting not one but two acquisitions jointly valued at US$4.8 billion: Pivotal Software, to enhance VMware's developer support for containerized Kubernetes applications; and Carbon Black for enhanced security. VMware also reported $2.44 billion quarterly revenue, up 12% year-over-year.
The Pivotal acquisition, valued at $2.7 billion, is an odd one, because Dell Technologies owns controlling interests in both VMware and Pivotal, so the two companies are already related. However, the acquisition will enable tighter integration between VMware and Pivotal products, VMware CEO Pat Gelsinger said on the company's earnings call with analysts Thursday afternoon.
The Pivotal acquisition will also give VMware developer support for its multicloud infrastructure platform.
With the Carbon Black acquisition, which VMware values at $2.1 billion, the company is buying a company that has focused on preventive, rather than reactive, security, noted Gelsinger, who referenced his speech at this year's RSA security conference when discussing the deal: "I described the security industry like bad attorneys. They chase around, find the accident, and get more security spend justified after the accident. What a terrible business model," Gelsinger noted.
"A better business model is to prevent the accident from occurring. This, to us, is a very fundamental, disruptive change that's under way," Gelsinger said.
He added, "Our objective is not to build a new business. It is to change the industry, because the industry as we know it today is not working, and as more and more of humanity puts their lives, their financials, their health on the tech platform, they're expecting a much higher return and much better protection of their data and lives than the tech industry is giving. So for us it's a much bigger cause than just building a business unit or starting a revenue line. We're out to change the security industry."
VMware expects the transactions to close in the second half of VMware's fiscal 2020, which ends January 31, and enhance VMware's overall strategy of helping organizations move to a multicloud strategy comprising public, private and hybrid clouds.
The acquisitions complete the full cloud stack for VMware, Gelsinger said. "There's going to be a build-run-manage stack associated with Kubernetes," he said. VMware previously had the 'run' part of that stack with existing products such as vSphere.
VMware's late-2018 acquisition of Heptio provided the management layer, said Gelsinger. VMware bought Heptio for its products, training, support and professional services that help organizations deploy and operate Kubernetes. VMware paid $550 million for the company.
"But we really did not have build assets. And that's where Pivotal and their capabilities were uniquely positioned in the industry, to finish that stack," Gelsinger said.
VMware has had a busy 12 months of M&A activity. In addition to Heptio, Pivotal and Carbon Black, VMware has acquired:
For telcos and other service providers, the acquisitions help VMware become a better partner for moving network workloads to cloud architectures, VMware says.
VMware positioned both the Pivotal and Carbon Black acquisitions as enterprise plays. However, the acquisitions matter to telcos and other service providers as well.
Telcos are transitioning their networks to cloud infrastructure and control planes, to get ready for the challenges of managing and delivering 5G and, in general, to become more flexible, cut the time it takes to deploy new resources, reduce costs and unearth new revenue-generating opportunities. That transition is likely to involve the deployment of Kubernetes and other technologies with an enterprise heritage.
Also, VMware has a Cloud Provider business unit, which provides products and services to global service providers that help enterprises with their cloud deployments and strategies.
The Pivotal, Carbon Black and other VMware cloud technologies will be useful for those service provider businesses.
As for the financial results for the fiscal second quarter that ended August 2: VMware generated revenue of $2.44 billion, with license revenues accounting for $1.01 billion, up 12% year-over-year. Non-GAAP net income was $667 million or $1.60 per diluted share, up 4%.
VMware stock is trading down 6.2%, at $139, in pre-market trading Friday morning, while Pivotal's stock is up 8.5% at $14.87.
— Mitch Wagner Executive Editor, Light Reading