VMware Expands vCloud Hybrid Operations In Europe And Asia
Virtualization giant VMware (NYSE:VMW) revealed its plans for international expansion in days after its Q2 earnings. The plans focus around VMware’s hybrid cloud offering, which is largely responsible for driving strong results in recent quarters. In addition to opening a new vCloud data center in the U.K. catering to the Infrastructure-as-a-Service (IaaS) and hybrid cloud offering in the region, VMware has closed deals with Japanese telecom provider SoftBank and China Telecom (NYSE:CHA) to expand its international presence. VMware’s share of revenues from international markets rose from 51.5% in 2011 and 2012 to 52.3% in 2013. This mix further increased to 52.7% in the first half of 2014, as the company looks to capitalize on the fast-growing regions beyond the domestic U.S. market. [1]
VMware reported a 17% year-on-year rise in net revenues during the June quarter, with growth coming from both products and services. The company expects a similar growth rate in the latter half of the year with network virtualization, hybrid cloud and end-user computing driving results. In this note, we a take a look at the company’s plan to expand in markets other than the U.S.
We have a $100 price estimate for VMware’s stock, which is in line with the current market price.
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Hybrid Cloud Goes International
VMware’s services division is likely to continue to reap benefits from its hybrid cloud offering as the vCloud Hybrid service gains popularity among buyers. The company recently announced new deals in the following geographies that will help it to sustain growth:
- U.K.
VMware added its fourth worldwide data center in Chessington, deciding to open another data center in England in order to cater to the growing demand for hybrid cloud service in Europe, particularly in the U.K. [2] Demand for cloud-based services from enterprise clients is expected to grow significantly in the coming years, as evidenced by IT giant IBM’s (NYSE:IBM) plans to also open a data center in London, with a focus on its SoftLayer cloud infrastructure. The company plans to invest $1.2 billion in cloud services and building infrastructure across a number of international markets such as Europe, Asia and the Middle East. [3]
- Japan
VMware confirmed its deal with Japanese telecom company SoftBank to introduce its vCloud Hybrid Service in the country. [4] Softbank will provide VMware with the necessary data center facilities, sales support force and its own network to support the IaaS public cloud offering. VMware has made a beta program available for now, with an intention to make the product generally available for launch in the December quarter. The IaaS offering will also include data protection and disaster recovery services, in addition to storage, networking and security services.
- China
VMware also confirmed a deal with Chinese telecom giant China Telecom to build a hybrid cloud service in China. VMware will initially provide IaaS platforms, with disaster recovery and Desktop-as-a-Service in later stages. The software solutions will be branded under China Telecom E-surfing Hybrid Cloud Service in the region. [5] VMware’s business in China has grown by 20% in the last two years – less than hybrid cloud service that will be ready to launch next year.
Management expects the company-operated cloud to be available in over 75% of the world’s cloud market by the end of the year. VMware already has over 4,000 service provider partners for VMware cloud globally, which should help the company reach out to its solid customer base (about half a million in numbers) for hybrid cloud adoption. VMware’s hybrid cloud business, which includes its vCloud Service Provider Program and vCloud Hybrid Service, grew by nearly 80% in the most recent quarter, while cloud management license bookings grew by more than 30% y-o-y during the quarter. The company anticipates a large chunk of its half-a-million customers to start adopting enterprise class hybrid cloud services. VMware expects its net revenues to grow at over 15% over last year to over $6 billion, while it expects services revenues to grow by over 17% y-o-y to almost $3.5 billion. [6] A solid customer response to its international expansion efforts should help the company meet its target.
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Notes:- VMware Q2 2014 10-Q, SEC, July 2014 [↩]
- VMware Rocks Up in Chessington with Second UK Datacentre, Channel Web, July 2014 [↩]
- IBM Announces London SoftLayer Data Centre, TechWeek Europe, June 2014 [↩]
- VMware brings vCloud Hybrid Service to Japan, ZD Net, July 2014 [↩]
- CTC and VMware Announce Plans to Build Hybrid Cloud Service in China, VMware Blog, July 2014 [↩]
- VMware Q2 2014 Earnings Call Transcript, Seeking Alpha, July 2014 [↩]