VMware’s Key Growth Areas For Enterprise Customers And End-Users
Back in 2003, EMC Corporation (NYSE:EMC) acquired virtualization software company VMware (NYSE:VMW) for $625 million, while VMware is currently valued at around $32 billion. ((EMC Completes Acquisition of VMware, EMC Press Release, January 2004)) Massive growth in the market for virtualization software started in the late 2000s with x86 server-based virtualization driving much of the growth. Over the last few years, VMware has expanded its offerings to include software-defined storage and network virtualization to add to its server virtualization capabilities. Subsequently, VMware has witnessed massive growth in recent years, with its revenues growing from under $2 billion in 2009 to $6.6 billion in 2015.
VMware has developed its offerings to cater to the fast growing market domains ranging from server virtualiztion, software-defined storage and network virtualiztion. VMware made some key announcements at its annual global conference for virtualization and cloud computing, VMworld earlier this month. We currently have an $73 price estimate for VMware’s stock, implying a market cap of about $31 billion. Our current price estimate is roughly in line with the current market price. VMware’s stock price has risen from $50 at the beginning of the year to current levels as the closing of the Dell-EMC deal approaches. Below we take a look at the factors driving the company’s future growth and the key announcements made by VMware at VMworld.
See Full Analysis For VMware Here
Docker Containers On VMware vSphere
The first key announcement made by VMware was about integrating Docker Containers on its flagship vSphere hypervisor. Docker is basically an open-source project that deploys software applications within containers by adding a layer of operating system virtualization that sits on top of Linux, Windows or Mac OS. Docker has gained popularity since its inception in 2013, as IT organizations and developers use it as a portable platform for delivering applications across operating systems. Moreover, containers use far less system resources than entire virtual machines on a virtualization platform, due to which the Docker 1.0 has become popular. [1] The Docker platform uses containers that use shared operating systems and sit on top of single Linux instances, thereby making them more efficient to use than virtual machines (VM) offered by virtualization providers such as VMware or Citrix.
Early reports indicated that this technology could be threatening to VMware’s business, but VMware’s management indicated that it will work with Docker, in addition to Google (NASDAQ:GOOG) and Pivotal (partially owned by VMware) to integrate Docker containers on its virtualization platform. [2] This was confirmed at VMworld this year. [3] The VMware vSphere Integrated Containers would enable customers to work on an interface that supports Dockers for app building while running the existing vSphere architecture. This would help retain customers that may have shifted away from VMware due to lack of Docker integration. The company had introduced the vSphere Integrated Containers as a virtual container host back in August last year. The existing architecture supported Dockers, but the new upgrade allows customers manage functionality in order to support “containerized” applications. [4]
Free Upgrades on VMware Workstation & Fusion
VMware offers desktop virtualization software suites VMware Fusion (for Mac) and VMware Workstation (for Windows) that enables the desktop hypervisors to run Windows 10 sessions on their existing Mac or Windows computers systems. Virtualization company Parallels is a key competitor for VMware in this domain. VMware typically charges end users $200 (in case of Fusion) or $250 (for Workstation) as a license fee to use this software suite. Additionally, the fee to upgrade these suites stood at $80-100. VMware announced that it has now scrapped off the additional upgrade fee on this, despite adding support for the Windows 10 Anniversary edition and Windows Server 2016. Moreover, the company has reduced prices for Workstation 12 for users that have already used the earlier versions. Comparatively, Parallels has not introduced free upgrades to its platforms this year, despite minimal change to the core product. [5] This should help VMware gain share in the desktop virtualization market. This is good news for existing VMware customers since the company laid off Workstations and Fusion developers earlier this year. [6] This led to speculation that VMware could be letting go of its core business from the early 2000s to focus on newer areas of focus such as network and storage virtualization.
Research firm MarketsandMarkets estimates that the Workspace-as-a-Service (WaaS) market is expected to grow at a CAGR of 14.6% from $4.8 billion in 2014 to $9.4 billion in 2019. [7] The consolidated WaaS market includes Virtual Desktop Infrastructure, Desktop-as-a-Service (DaaS), hosted applications and security solutions. Assuming linear growth in the forecast period, the WaaS market could potentially be an $8.2 billion market by 2018. Within WaaS, IDC estimated the hosted desktops market to be a $1.7 billion market in 2014. [8] If VMware can successfully capture about 20-25% of this market in the next few years, it could lead to license revenue generation of about $300-$400 million per year.
View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research
- What is Docker and why is it so darn popular?, ZD Net, August 2014 [↩]
- VMware Teams With Docker, Google and Pivotal to Simplify Enterprise Adoption of Containers, VMware Press Release, August 2014 [↩]
- VMware Adds Docker APIs to vSphere, Light Reading, August 2016 [↩]
- VMware Expands Container Efforts, Eweek, August 2016 [↩]
- VMware says, “We’re not dead,” updates Fusion and Workstation for free, ARS Technica, August 2016 [↩]
- VMware axes Fusion and Workstation US devs, The Register, January 2016 [↩]
- Workspace as a Service Market worth $9.41 Billion by 2019, Markets and Markets, March 2015 [↩]
- Worldwide Workspace-as-a-Service 2014–2018 Forecast, IDC, July 2014 [↩]