Context: Pat Gelsinger was in town this month on what is emerging as a regular bi-annual tour to talk with major Canadian customers. While in Toronto, the CEO of VMware also took some time to speak with local media about the company’s positioning, products and opportunity at a time of significant transition for the company and transformation for the ICT industry as a whole. From a wide ranging conversation, InsightaaS observed the following key notes.
Rumours of my death are greatly exaggerated: Since announcement of Dell’s purchase of EMC and its federated companies, speculation over how Dell would finance the largest acquisition in ICT history has been rife. One suggestion that has been advanced in many quarters, is spin off of EMC assets, and VMware in particular, which has always commanded a good deal of operational autonomy within the EMC federation. More recent conjecture – hailing from CRN online – which emerged this May arguing that Gelsinger personally would leave once the Dell acquisition is complete due to performance outcomes associated with the vCloud Air offering and due to an uncertain assessment of Gelsinger’s own inclination towards cooperation, continues to beg a response – as was evident at the Q&A session.
Gelsinger’s position on these questions was unequivocal: “we have an ecosystems in place that we have carefully cultivated for a decade and a half, I now have strong economic interest from Dell behind me to accelerate our growth. I have absolute stability – no one is acquiring Dell; no one is acquiring me, so I’m very stable in that regard, and we have huge growth potential in the markets that we play in, and huge financial interests behind us to add turbo chargers to our growth.” Less than stellar stock prices for VMware achieved since the acquisition announcement he attributed to an inability to discuss performance with financial analysts during the “silent period” imposed on the company, and to uncertainty over the “deal overhang,” including $67 billion of debt for Dell, stock tracking and protection of shareholder rights. Today, with the proxy final and deal uncertainty dissipating, Gelsinger added that for VMware, “Q4 was solid; Q1 was good. There is more momentum; the vision is holding, and our business is nice, solid and stable; people are becoming comfortable with the transaction recognizing VMware’s ability to be successful in the marketplace. We are trading at $64-65 per share today – so up $17 from our low.”
Cloud dallying on the tip of the iceberg: As Gelsinger articulated it, VMware’s primary aim to support IT, which formerly had responsibility for reliability, security, governance and fiduciary guarantees for organizational infrastructure, who must now, in the world of cloud, wrestle for control in data centres and over devices that are managed elsewhere on networks and infrastructure that are no longer owned by the business. To help organizations navigate this multi-cloud, multi-device future, VMware has focused on the development of new solutions capable of ensuring collaboration and cloud integration, management of SaaS services, and security of devices and data in transit in order to allow users to take advantage of the tremendous resource growth that cloud represents.
Going forward, though, Gelsinger expects the tip of the iceberg that is now visible to rear up, engulfing organizations that have not invested appropriately in cloud management: “We’re in inning one of the cloud journey. Even as big as cloud is, it’s still a very small fraction of the total infrastructure spend.” He argued. For VMware, then, another goal is to help customers also manage 30 year investments in legacy infrastructure – the hybrid present – or the variety of need associated with a growing diversity of applications, or even shared need in community clouds. “Part of our unique role is to be a technology provider that enables that rich diversity in that ecosystem to really flourish,” Gelsinger concluded.
IoT will stimulate a business revolution built on ICT evolution: Gelsinger described 2016 as “the transition year” for VMware, as the company extends focus beyond its 80 percent penetration of server virtualization markets to the development of new solution capabilities. “Growth rates in new areas, like NSX or virtual SANs, have been good over the last two years, and they are now getting big enough to create a true growth opportunity,” he explained. But this extension is only the latest in foundational development “that has been laid” over thirty years that “is now being materialized,” and which will enable VMware to capitalize on broad transformation in the marketplace – i.e. IoT. In Gelsinger’s view, the company’s expanded portfolio, and mobility capabilities in particular – “what’s an IoT device? It’s an embedded smartphone,” he answered – will combine to allow VMware to support the transformation of business models that IoT embodies. “Now the pieces are coming together, and for me, it’s a very thrilling time.”
The bottom line:
Curiously, a victim of its own good fortune, VMware has worked for several years to move beyond focus on virtualization markets – increased market share is a questionable strategy in the context of market dominance. And in its new initiatives, the company has chosen different tactics that may yield longer term benefits than platform hegemony. For example, the multi-cloud strategy, backed by an agnostic management and integration suite that aims to incorporate public and managed offerings from many suppliers is better aligned with the present and future reality of many user organizations. In recent research, InsightaaS has found that by 2017, the number of delivery platforms used by small organizations will be 3.1; by medium-sized businesses will be 4.6 and by enterprises will 4.8, representing an average increase from year end 2015 across all size categories of 64 percent. Hybrid or even bi-modal environments, which are likely to predominate in the vast majority of enterprises for some time to come, are best served by a management platform designed to handle diversity – and by networking capability that is abstracted and layered on top of hardware components to offer maximum configuration and flexibility.
NSX, which delivers this flexibility as well as new levels of security via micro-segmentation, was identified by Gelsinger as VMware’s number one priority in terms of R&D, acquisition and growth is well positioned to address a primary challenges in IoT deployment – secure connectivity. And when combined with solutions for building the infrastructure, connecting the mobile device, securing mobile and networking connectivity, and supporting the data platform and the backend needed to capture and analyze the data, the software defined network and data centre provide a sound foundation for the mounting wave of IoT implementation. Summarizing, Gelsinger concluded: “when people talk about VMware in the context of these enormous tectonic shifts that are occurring in the industry, I believe by the end of this year we will have created enough evidence of our new product, the growth of our new products, and the growth of our strategy to allow everybody to say, ‘they are clearly part of our strategic future. There’s no doubt that VMware can take its customers across this mobile-cloud transition.” And this for Gelsinger as well, the new source of stability.