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VMware Revenues Leap on Networking, Cloud

VMware revenue was up 11% year-over-year in quarterly results reported Monday, as the company continued its multi-year drive from traditional server virtualization software to new products.

VMware Inc. (NYSE: VMW)'s traditional strength has been in server virtualization software, but sales on those products are slowing. So the company is looking to SDN, cloud software and mobile device management for its future. Particularly bright for VMware in the second quarter were NSX SDN software -- with license bookings more than doubling year-over-year, and more than 1,700 customers -- Virtual SAN storage networking, with about 5,000 customers; AirWatch mobility management; and vCloud Air Network MSP program, CEO Pat Gelsinger said on Monday's earnings call.

"The rock stars of Q2 were NSX and VSAN," Gelsinger said. Those "just fabulous" products, along with AirWatch and VCAN business, "have been strong growth drivers, all of which exceeded our plans." Virtualization also exceeded expectations -- that software performed better than a forecast 10% decline in the first and second quarters of the year. VMware expects these trends to continue in the second half of the year.

Compute license bookings were less than half of license bookings in the second quarter, declining in the low single digits year-over-year. By contrast, combined growth for hyper-converged software was over 200% year-over-year and bookings for vCloud Air Network grow more than 25% year-over-year.

Second quarter revenue was $1.69 billion, compared with analyst estimates of $1.68 billion. Non-GAAP net income was $414 million, or 97 cents per share, up 5% per diluted share, compared with $396 million or $0.93 per diluted share in the year-ago quarter. Analysts forecast 95 cents.

Shares were up 8.76% to $68.05 in after hours trading.

Dell Technologies (Nasdaq: DELL)'s acquisition of EMC Corp. (NYSE: EMC), which owns a controlling interest in VMware, is expected to close on schedule as originally announced, Gelsinger said. Dell had said when it announced the deal in October 2015 that it expected the deal to close between May and October this year. EMC shareholders will vote on the deal Tuesday, leaving Chinese regulatory approval as the final hurdle. (See Dell Buys EMC for $67B in Biggest Tech Deal Ever.)

VMware expects to see a $1 billion "revenue acceleration for VMware over time" from the Dell acquisition, by opening up VMware to Dell channels, Gelsinger said Monday. He expects that to ramp up quickly after the deal closes. Dell CEO and Founder Michael Dell has said he will keep VMware independent, and is enthusiastic about accelerating growth for VMware with other channels in addition to Dell.


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Following the close of the deal, VMware will execute a $1.2 billion stock repurchase announced last quarter.

Looking ahead, VMware expects to unveil new hybrid cloud products at its VMworld customer conference in Las Vegas beginning Aug. 28, Gelsinger said Monday.

VMware upgraded its guidance for fiscal 2016 and the third quarter. For fiscal 2016, the company expects total revenue of $6.95 billion to $7.05 billion, and diluted non-GAAP EPs of $4.27 to $4.33. In the third quarter, VMware expects total revenue of $1.736 billion to $1.788 billion, with diluted non-GAAP earnings per share of $1.08 to $1.11.

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— Mitch Wagner, Follow me on TwitterVisit my LinkedIn profile, Editor, Light Reading Enterprise Cloud

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