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Investment Overview for VMware (NYSE:VMW)
Below are key drivers of VMware's value that present opportunities for upside or downside to the current Trefis price estimate for VMware:
Maintenance As A % Of License Revenue: We currently estimate that VMware's maintenance as a percentage of license revenues will increase gradually to about 130% and stabilize at that level through the end of our forecast period. There could be a 10 percent upside to our current Trefis price estimate if this growth continues at historic rates to reach 150% of license revenues by the end of our forecast period.
VMware Market share: We expect the company's market share to decline gradually from 44 percent in 2015 to 40 percent by the end of our forecast period (note that this market share is relative to all virtualized servers rather than total market revenues). If the market share drops to 35 percent in the same period, there could be a potential downside of 10 percent to the current Trefis price estimate. This could happen due to increased competition from other players such as Citrix, Microsoft, Dell, IBM and HP. However, if its market share was to remain constant through the end of our forecast period, there could be an upside of 10 percent to our Trefis price estimate.
VMware is the leading software virtualization company worldwide. EMC is the company's largest stakeholder with an 80% share. EMC also consolidates VMware's results within its own operating results.
VMware's revenue channels can be categorized into the following segments:
- vCloud Suite allows customers to run a vSphere based private cloud. It provides application provisioning and automated operations management.
- Hybrid cloud services or vCloud Air aims to expand beyond private cloud virtualization towards hybrid clouds that include elements of both private and public clouds.
Server Virtualization Software
- Allows companies to increase the utilization of their servers by allocating the virtualized resources of server hardware to multiple applications, in a manner that is independent of the underlying operating system required to execute the application.
- VMware offers Enterprise Mobility Management and Content Collaboration product offerings, primarily from the AirWatch acquisition in early 2014.
- Desktop virtualization allows users to run multiple operating systems on a single desktop or notebook. For example, by using VMware's desktop virtualization software, a user can run Apple's Mac OS X from within a Microsoft Windows machine
High Virtualization Market Share
VMware was estimated to have a dominant market share of just under 45% in 2015.
Increasing Virtualization Software Competition
Microsoft, Citrix, Oracle and many others have come out with their own versions of virtualization software. Partnerships by competitors could reduce VMware's share gains; for example, HP's ProLiant servers now offer built-in support for Citrix' XenServer. Additionally, Citrix XenDesktop competes with VMware View.
Increasing Adoption of Cloud Services
Businesses are shifting from legacy systems to cloud based systems as this helps reduce costs by resource pooling and allows for easy scaling of applications. Cloud services drive virtualization and as cloud services get popular, we expect the demand for virtualization to grow.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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