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.)
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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