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» VIEW ALL POSTS Jul 20 2011   1:18PM GMT

VMware will shop ‘til they drop



Posted by: Beth Pariseau
Tags:
VMware

VMware intends to keep making acquisitions and hiring new employees at its newly expanded campus in Palo Alto, Calif.

That was the word from officials during VMware’s quarterly earnings results call Tuesday night. VMware has already added 1,400 new employees this year, mostly through the acquisition of companies such as Mozy and Shavlik.

“Expect us to continue on a rapid M and A and hiring pace,” Chief Financial Officer Mark Peek said.

VMware said it has $3.7 billion available to make such acquisitions, and has already spent approximately $600 million on acquisitions and capital costs this year — including $225 million for expanding its Palo Alto campus by 1 million square feet. Further capital expenses for the campus expansion are expected to total $50 million in the second half of 2011.

So what will VMware buy to fill all that square footage?


“We believe that we still have untapped markets, particularly in the SMB space and in … the developing economies of the world,” CEO Paul Maritz said.

Microsoft Hyper-V is gaining steam at the low end of the market — especially among Windows shops — and it would behoove VMware to invest in management tools for SMBs, said Taneja Group analyst Jeff Byrne.

“Anything that makes it simpler for SMBs to adopt and deploy vSphere … would give them an immediate competitive advantage,” Byrne said.

ELA explosion

Meanwhile, enterprise license agreements (ELAs) that VMware put in place with customers in 2008 bore a bumper crop of fruit this quarter. Of $921 million in total revenues for the quarter, $465 million came from licenses — an increase of 44% over last year’s second quarter. The $465 million included a “healthy mix” of renewals and new ELAs, Peek said.

Within that came record ELA bookings as a percentage of total bookings, he said (although VMware did not disclose the specific number of ELA bookings). In fact, license renewals were so strong in the second quarter that the company anticipates licensing revenues in the third quarter will decline 5% to 10% sequentially, because some customers renewed their licensing agreements early.

The vSphere 5 effect

It’s unclear exactly why there were so many ELA renewals just before a major new release, but some industry watchers speculated that customers may have tried to lock in favorable licensing and pricing rates in anticipation of VMware vSphere 5, especially given its licensing changes. Upgrade packages for vSphere 5 could also potentially have been included as deal-sweeteners as an incentive to renew ELAs early.

VMware didn’t officially announce vSphere 5 until last week, but details about the release have been known for months and many enterprise customers were in beta programs. Peek and Maritz said they don’t expect vSphere 5 to significantly affect VMware’s finances this year; once the release is out in the third quarter, users will have it in testing and development for several months prior to putting it into production.

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