Virtualization and cloud infrastructure giant VMware (NYSE:VMW) posted strong growth in its recent quarter due to increased new product bookings. The company witnessed a slowdown in its core virtualization business and intends to focus on hybrid cloud going forward. VMware recently announced Health Insurance Portability and Accountability Act (HIPAA) assessments and attestation functionality for its vCloud Hybrid Service.  This enables healthcare companies to meet HIPAA security requirements and implement cloud computing to integrate all the existing information systems on a common platform.
The healthcare industry can provide a boost to an already growing cloud market. The industry’s investment in cloud computing is expected to increase at an annual rate of 21% to reach $5.4 billion by 2017, according to research by MarketsandMarkets. 
In this article, we take a look at the key trends affecting expenditure on cloud implementations by the healthcare industry and how it impacts our $93 price estimate for VMware.
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Why Is The Healthcare Industry Adopting Cloud?
The healthcare industry is well into a sustained adoption of healthcare information systems, clinical information systems and picture archiving communication systems. Yet to be achieved on a large scale are implementations that integrate all of them on a single platform.  Using a cloud-based services to integrate these systems can be beneficial in a number of ways.
Firstly, cloud computing makes it possible to manage and access information from multiple mobile devices and fixed locations, which makes it easier to transfer and share information. For example, a patient’s Electronic Medical Record (EMR) stored on a cloud can be accessed by a different physician in the future even at a different location. The same can also be shared with a pharmacy for prescriptions. Not only does using the cloud simplify the process, it can also cut down the expenditure on server and storage hardware by almost 90%.  In addition, the costs incurred on hiring and training human resources to manage systems can be significantly reduced.
Secondly, the scalability that cloud implementations offer makes it convenient to purchase server and storage capacity as and when required. In the existing setup, the healthcare companies have to maintain their own hardware systems. However, as the amount of data to be stored increases with time, there is an added pressure on healthcare service providers to continually upgrade and maintain these systems. Using the cloud eliminates the need of purchasing and maintaining local systems, allowing these companies to leverage the scale of cloud providers. 
Until now, the adoption of public clouds in the healthcare industry had been a concern owing to health-related regulations for the access of confidential data. As a result, the penetration of cloud computing in the healthcare industry stood at a mere ~4% in 2011. With fading skepticism over the usage of cloud computing in the healthcare industry, combined with the aforementioned benefits of implementing cloud, the adoption rate could increase significantly in the coming years.
Impact Of Healthcare And Cloud On VMware
VMware’s sizable share in the virtualization market has fallen somewhat with recently added competition from companies like Oracle, Microsoft, Citrix etc. (For details read our note: VMware Has Tough Fight In Store After Microsoft and Oracle Partnership) However, this increased adoption of cloud computing is generating additional demand for VMware’s vCloud suite (private cloud infrastructure) and vCloud Hybrid (public cloud service) offerings, making them a clear point of focus for the company over the past few quarters.
Currently no player in healthcare cloud computing owns more than a 5% market share.  The expected demand for cloud adoption in the healthcare industry provides a perfect opportunity for VMware to capitalize on its Software Defined Data Center (SDDC) architecture-based vCloud Hybrid service. A conservative 2% gain in market share for VMware could lead to a nearly 4% upside to our $93 price estimate.Notes: