VMware’s Hybrid Cloud Business To Be Boosted By IBM Partnership
IT Giant IBM (NYSE:IBM) announced that it has signed an agreement with virtualization and cloud computing provider VMware (NYSE:VMW) under which VMware customers will be able to migrate data from their existing data centers to the IBM Cloud. [1] Customers can choose to migrate data to IBM’s cloud seamlessly using VMware’s vCenter management and automation tools without having to rewrite data. IBM aims to compete with public cloud market leaders such as Amazon (NASDAQ:AMZN) in the growing cloud computing market. On the other hand, VMware can capitalize on its growing hybrid cloud segment after establishing itself as a dominant player in the private cloud market over the last few years.
We have a revised $74 price estimate for VMware’s stock, which is significantly higher than the current market price. VMware’s stock price fluctuated between $75 and $90 through the first three quarters of 2015 before plummeting by over 25% following the announcement of the Dell-EMC deal. Since then VMware’s stock has traded in the $45-$60 range. Below we take a look at how the IBM agreement could continue to drive growth in VMware’s hybrid cloud segment.
See our complete analysis for VMware here
IBM Gets Ambitious In The Cloud Computing Space
IBM currently owns and operates about 45 data centers across the world. The deal with VMware will add its flagship vSphere hypervisor, network virtualization platform NSX and Virtual SAN (storage area network) capabilities to IBM’s data centers. Moreover, enterprise customers can use VMware’s vRealize Automation and vCenter management tools to migrate workloads and data to the cloud systems.
Hybrid Cloud Business Crucial To VMware’s Growth
VMware offers a common hybrid cloud platform for both on-premise private cloud deployment and on the public cloud. The company rebranded its hybrid cloud service to vCloud Air at the end of Q2 last year, and VMware has witnessed massive growth in the hybrid cloud business. The vCloud Air platform supports over 5,000 applications from over 2,000 independent software vendors with apps ranging across fields ranging from finance, healthcare, retail and telecom. [2] vCloud Air supports more than 90 operating systems, which is twice as many as competing platforms Microsoft Azure (NASDAQ:MSFT) and Amazon Web Services (NYSE:AMZN) combined.
VMware’s hybrid cloud business grew by around 90% year-over-year through 2014, making it one of the fastest growing segments within VMware. As a result of its solid growth, hybrid cloud and software-as-a-service offerings combined formed about 5% of VMware’s net revenues through 2014, up from under 3% of net revenues in 2013. VMware’s management intended to provide the company-operated cloud available in over 75% of the world’s cloud market by the end of 2014. At the time, VMware had over 4,000 service provider partners for VMware cloud globally. Moreover, in an attempt to reach out to its solid customer base (around half a million in number) for hybrid cloud adoption, VMware management enhanced its hybrid cloud product offerings including the vCloud Service Provider Program and vCloud Hybrid Service in subsequent quarters.
The trend continued in 2015, as VMware announced the general availability of new hybrid networking capabilities, including VMware Hybrid Cloud manager and Advanced Networking Services in Q3’15. As a result of a strong customer response to the services and enhanced product offerings, VMware’s hybrid cloud and Software-as-a-Service (SaaS) businesses combined continued their strong performance through 2015, registering nearly 35% annual growth in revenues to just under $400 million for the year. Consequently, the contribution of hybrid cloud was up to over 6% of VMware’s net revenues in 2015.
According to Research and Markets, the hybrid cloud market could grow at a CAGR of over 27% from $25 billion in 2014 to almost $85 billion through 2019. [3] Although near-term growth in this segment could be hindered by a stronger dollar and tougher year-over-year comparisons this year, VMware is poised to capitalize on growth in this market.
View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research
- IBM Inks VMware, GitHub, Bitly Deals, Expands Apple Swift Use As It Doubles Down On The Cloud, Tech Crunch, February 2015 [↩]
- What is vCloud Air?, VMware Product Description, September 2015 [↩]
- Global Hybrid Cloud Market 2015-2019, PR Newswire, April 2015 [↩]