VMWare Update: Two Rough Quarters

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Latest BlackBerry Bold launch date: October 27, 2008

VMWare, is best known as a market leader in virtualization software, a type of software that simulates hardware for the purpose of separating a computer’s operating system from its hardware. For the consumer this allows one computer to run multiple operating systems, like Apple computers running Windows. For enterprise users, virtualization lets them run multiple virtual servers off of one physical server. However the software maker cannot seem to catch a break.

Research by IDC, and first reported by ComputerWorld, shows that VMWare’s market share of the enterprise X86 virtualization market fell from a reported 51% during 2007 to 44% during the third quarter of 2008. At the same time Microsoft’sHyper-V virtualization product has already had a material impact on Microsoft’s market share, even though the product was only released three months ago, as Microsoft’s market share jumped to 23% during the third quarter, up from 18% in the first quarter of 2008.

VMWare has not only lost a significant amount of market share in dramatic fashion, but also has lost a significant quantity of senior talent and share holder value. According to Reuters and the New York Times, since September 1st, VMWare has lost Richard Sarwal, their Executive Vice President for Research and Development, Mendel Rosenblum, a Co-Founder and their Chief Scientist, and Paul Chan, their VP for Product Development. As of the market’s close on Friday VMWare was trading at $20.69 per share, less than a sixth of its 52-Week high of $125.25 per share, and having lost more than 75% of its share price year to date. This comes after a tumultuous summer which saw VMWare’s founding CEO, Diane Greene, forced out by the board of its parent company, EMC, resulting in VMWare shares losing 25% of their value in one day.http://charts.wikinvest.com/WikiChartMini.swf

Given the current economic climate, VMWare should be doing better than ever. With the growth of Apple’s Intel based computer platform people are using VMWare’s Fusionsoftware, and its competitor Parallels Desktop, to boot Windows on Apple hardware. But more importantly in the current economic downturn, one way that organizations will squeeze more computing power out of existing hardware is to spend budgets on virtualization software rather than on new servers. This is because virtualization lets enterprises deploy multiple virtual computers on a single set of hardware while simultaneously maximizing hardware utilization and consolidating resources. This is why virtualization was ranked one of the top ten strategic technologies to watch in 2009 according to Gartner. As further evidence of the growth in the virtualization market, IDC noted that virtualization shipments increased a staggering 53% between the second quarter of 2007 and the second quarter of 2008. With enterprise grade products like VMWare Server and VMWare ESXi, the company seemed well positioned to make the most of the current economic situation.

The introduction of Hyper-V, which is priced extremely competitively, in combination with senior management turn over and slumping share prices has caused VMWare to be downgraded by at least three different investment houses (1, 2, & 3) in the past month. This combination of factors seems to be the perfect storm to disrupt VMWare from being able to take advantage of the opportunities which the current economic duress could have afforded it. Lets hope for the sake of their employees and their shareholders that they can get it together.

  • http://galaxyspectrum.com/ Public Relations

    VMWare is really striving to improve their software and their compatibility with as many of the popular business softwares.

    They are forming new partnerships and doing cross country live marketing seminars designed to attract IT heads of enterprises.

    We were just at an interactive seminar yesterday and have been to 4 others where they have presented.

    We have been getting a surge or interest from our clients on their solution, especially as there is more pressure to be green, cut down on costs, and optimize existing storage

  • http://galaxyspectrum.com/ Public Relations

    VMWare is really striving to improve their software and their compatibility with as many of the popular business softwares.

    They are forming new partnerships and doing cross country live marketing seminars designed to attract IT heads of enterprises.

    We were just at an interactive seminar yesterday and have been to 4 others where they have presented.

    We have been getting a surge or interest from our clients on their solution, especially as there is more pressure to be green, cut down on costs, and optimize existing storage

  • http://broncotalk.net Kyle

    The front page version of this post has a broken link, nothing too hard for anyone to figure out, just FYI.

  • http://broncotalk.net Kyle

    The front page version of this post has a broken link, nothing too hard for anyone to figure out, just FYI.

  • EH

    Isn’t VMWare by far the most expensive virt solution out there? It’s even more expensive than PowerVM for IBMs big (and medium) iron! It’s no surprise that the past few quarters have been brutal, try lowering your prices, guys.

    • http://www.mikedipetrillo.com Mike DiPetrillo

      EH, Vmware isn’t the most expensive solution out there. That’s a common misconception when you compare less capable and cheaper solutions to the more capable and more expensive Enterprise version from VMware. VMware sells more than just the Enterprise SKU. There’s everything from the FREE VMware ESXi to the Foundation SKU (very comparable in price and feature set to Microsoft’s offering), the Standard SKU for more high availability features (very comparable to Citrix’s solution in price and features), and finally the Enterprise SKU which has no equals in functionality. Sure, the Enterprise SKU is more expensive than any of the competition but it also has MANY more VMware exclusive features – each one of which pays for the license cost alone. Just check out http://www.vmware.com/technology/whyvmware/ for more details.

    • http://www.exeterdata.com Rob Bergin

      Comparing an x86 virtualization solution with something like PowerVM which only runs on AIX platforms is missing the boat – VMware is the Microsoft of virtualization, that’s what’s so shocking to Microsoft. It’s the ubitiquous platform for virtualization – I only know of one commercial grade Hyper-V customer and even they are having difficulty running just Hyper-V. The pricing is high, it will come down – the market will drive it – between Xen, Virtual Iron (Xen) and Hyper-V – they have to adjust prices.

      But the issue why they are losing revenue is because people are running more and more virtual machines on the physical hardware – today’s ESX servers are quad socket, quad cores with 128 GB of RAM – running densities of 40:1 or better.

      So if you had 1,000 physical servers to virtualize in 2H06 and your hardware was dual socket, dual cores with 32 GB of RAM you probably got 10:1 ratios so that’s 100 ESX licenses or $600k in revenue for VMware. Fast forward just 1 year, and in 2H07 – people are buying much bigger boxes – quad socket, quad cores with 128 GB of RAM and are running 40:1 ratios – so that same 1000 Servers would only require 25 ESX licenses or $325k.

      Get it – $600k vs. $325k – and to think an ELA is based on VM count not servers (gee I wonder why) – they want to pin the pricing based on the VM’s because they understand higher density computing is slaughtering their revenues.

      Less ESX servers means, less Virtualcenter agents to purchase, smaller hardware footprints is better right? smaller power consumption? greener? smaller hardware maintenance costs? Aren’t these all reasons why we virtualized in the first place – less is more?

      So 25 ESX hosts is better than 100 ESX hosts – consolidation, etc – who loses? VMware – their revenue shrunk because AMD and Intel came out with Quadcore and they stuck with socket licensing vs. core licensing and 4 GB DIMM modules got very cheap – the BL460c which was a staple for HP blades standed CPU because it couldn’t run more than 32 GB of RAM and people were barely pushing 10% of their CPU’s. That’s why HP and Dell both announced new “Virtualization blades” which just meant more DIMM banks – meanwhile all of the larger ESX shops aren’t running blades – they are running DL585s or r900s and taking advantage of the larger memory capacity and you can get to 128 GB with the 4 GB (which is much cheaper than the 8 GB DIMM).

      I want VMware to have a good Q3 – I really do – and so do the ton of people in the last 18 months.

      And if the Q3 or Q4 revenue isn’t there to support – who knows what a smart business man like Paul Maritz does in Q4 – especially if one of the options is to lower prices to compete with Microsoft.

      • LayoffsComing

        Or cut costs by laying off people from the “explosive” growth. Their capital expenses are WAY too high.

  • EH

    Isn’t VMWare by far the most expensive virt solution out there? It’s even more expensive than PowerVM for IBMs big (and medium) iron! It’s no surprise that the past few quarters have been brutal, try lowering your prices, guys.

    • http://www.mikedipetrillo.com Mike DiPetrillo

      EH, Vmware isn’t the most expensive solution out there. That’s a common misconception when you compare less capable and cheaper solutions to the more capable and more expensive Enterprise version from VMware. VMware sells more than just the Enterprise SKU. There’s everything from the FREE VMware ESXi to the Foundation SKU (very comparable in price and feature set to Microsoft’s offering), the Standard SKU for more high availability features (very comparable to Citrix’s solution in price and features), and finally the Enterprise SKU which has no equals in functionality. Sure, the Enterprise SKU is more expensive than any of the competition but it also has MANY more VMware exclusive features – each one of which pays for the license cost alone. Just check out http://www.vmware.com/technology/whyvmware/ for more details.

    • http://www.exeterdata.com Rob Bergin

      Comparing an x86 virtualization solution with something like PowerVM which only runs on AIX platforms is missing the boat – VMware is the Microsoft of virtualization, that’s what’s so shocking to Microsoft. It’s the ubitiquous platform for virtualization – I only know of one commercial grade Hyper-V customer and even they are having difficulty running just Hyper-V. The pricing is high, it will come down – the market will drive it – between Xen, Virtual Iron (Xen) and Hyper-V – they have to adjust prices.

      But the issue why they are losing revenue is because people are running more and more virtual machines on the physical hardware – today’s ESX servers are quad socket, quad cores with 128 GB of RAM – running densities of 40:1 or better.

      So if you had 1,000 physical servers to virtualize in 2H06 and your hardware was dual socket, dual cores with 32 GB of RAM you probably got 10:1 ratios so that’s 100 ESX licenses or $600k in revenue for VMware. Fast forward just 1 year, and in 2H07 – people are buying much bigger boxes – quad socket, quad cores with 128 GB of RAM and are running 40:1 ratios – so that same 1000 Servers would only require 25 ESX licenses or $325k.

      Get it – $600k vs. $325k – and to think an ELA is based on VM count not servers (gee I wonder why) – they want to pin the pricing based on the VM’s because they understand higher density computing is slaughtering their revenues.

      Less ESX servers means, less Virtualcenter agents to purchase, smaller hardware footprints is better right? smaller power consumption? greener? smaller hardware maintenance costs? Aren’t these all reasons why we virtualized in the first place – less is more?

      So 25 ESX hosts is better than 100 ESX hosts – consolidation, etc – who loses? VMware – their revenue shrunk because AMD and Intel came out with Quadcore and they stuck with socket licensing vs. core licensing and 4 GB DIMM modules got very cheap – the BL460c which was a staple for HP blades standed CPU because it couldn’t run more than 32 GB of RAM and people were barely pushing 10% of their CPU’s. That’s why HP and Dell both announced new “Virtualization blades” which just meant more DIMM banks – meanwhile all of the larger ESX shops aren’t running blades – they are running DL585s or r900s and taking advantage of the larger memory capacity and you can get to 128 GB with the 4 GB (which is much cheaper than the 8 GB DIMM).

      I want VMware to have a good Q3 – I really do – and so do the ton of people in the last 18 months.

      And if the Q3 or Q4 revenue isn’t there to support – who knows what a smart business man like Paul Maritz does in Q4 – especially if one of the options is to lower prices to compete with Microsoft.

      • LayoffsComing

        Or cut costs by laying off people from the “explosive” growth. Their capital expenses are WAY too high.

  • ItsALLVMs

    Ok I have to tell you that at one point they had the best people, hands down. Googlers were kids compared to VMware skill level. I mean really — if all our products could be beta, how hard can that be? Look at gmail — down 30 THIRTY hours. VMware can’t be down for a second.

    But they were too cocky. They did sense MSFT as the main threat, but too young/inexperienced management to move aggressively into acquisitions. Also they were too hung up on grades/schools/pedigree (kinda like Google, but at least they didnt ask about your College GPA decades later).

    In the end they couldnt focus, establish a good hiring pipeline, and finally build products, not features.

    Getting rid of Diane may have been needed, but not that way. She really did make the company and even though she wasnt one to lead it forward, they should have axed the entire management team and gotten some real talent in there.

    • http://www.mikedipetrillo.com Mike DiPetrillo

      “at one point they had the best people, hands down”
      Not sure what you mean by had. Those people are still here at VMware. The company continues to hire more of them every day. Unique, industry changing products continue to get created on a daily basis. Just look at some of the stuff announced at VMworld. There continues to be a very strong pipeline of hiring at VMware. If you’re interested just go look at the job opportunity list: http://www.vmware.com/company/jobs/.

      • http://www.exeterdata.com Rob Bergin

        Didn’t Maritz say that the company had hired 2,000 people in the last year, it was now putting in place a “hiring pause,” limiting new hires to the most strategic.

        And he also was quoted as saying:

        “We’ve experienced really explosive growth over the last year — it’s really important to make sure that you are digesting the growth.”

        So maybe VMware just has a tummyache and needs another quarter to digest??

        I just want to know if BlueLane was an “wafer-thin mint” or if the tummyache has passed – we will all find out on Tue, Oct 21, 2008, 5:00 pm (EST) for their Q3 earnings conference call.

    • http://techcrunch.com Dan Kimerling

      @ ItsALLVMs I have been hearing similar things. Right now they need confidence restored, but it looks like that will be easier said than done.

  • ItsALLVMs

    Ok I have to tell you that at one point they had the best people, hands down. Googlers were kids compared to VMware skill level. I mean really — if all our products could be beta, how hard can that be? Look at gmail — down 30 THIRTY hours. VMware can’t be down for a second.

    But they were too cocky. They did sense MSFT as the main threat, but too young/inexperienced management to move aggressively into acquisitions. Also they were too hung up on grades/schools/pedigree (kinda like Google, but at least they didnt ask about your College GPA decades later).

    In the end they couldnt focus, establish a good hiring pipeline, and finally build products, not features.

    Getting rid of Diane may have been needed, but not that way. She really did make the company and even though she wasnt one to lead it forward, they should have axed the entire management team and gotten some real talent in there.

    • http://www.mikedipetrillo.com Mike DiPetrillo

      “at one point they had the best people, hands down”
      Not sure what you mean by had. Those people are still here at VMware. The company continues to hire more of them every day. Unique, industry changing products continue to get created on a daily basis. Just look at some of the stuff announced at VMworld. There continues to be a very strong pipeline of hiring at VMware. If you’re interested just go look at the job opportunity list: http://www.vmware.com/company/jobs/.

      • http://www.exeterdata.com Rob Bergin

        Didn’t Maritz say that the company had hired 2,000 people in the last year, it was now putting in place a “hiring pause,” limiting new hires to the most strategic.

        And he also was quoted as saying:

        “We’ve experienced really explosive growth over the last year — it’s really important to make sure that you are digesting the growth.”

        So maybe VMware just has a tummyache and needs another quarter to digest??

        I just want to know if BlueLane was an “wafer-thin mint” or if the tummyache has passed – we will all find out on Tue, Oct 21, 2008, 5:00 pm (EST) for their Q3 earnings conference call.

    • http://techcrunch.com Dan Kimerling

      @ ItsALLVMs I have been hearing similar things. Right now they need confidence restored, but it looks like that will be easier said than done.

  • http://www.myartspace.com/blog Brian Sherwin @ Myartspace Blog

    Good observations ItsALLVMs.

  • http://www.myartspace.com/blog Brian Sherwin @ Myartspace Blog

    Good observations ItsALLVMs.

  • http://nykanen.net/2008/10/18/virtualappliancesnet/ nykanen.net » Virtualappliances.net

    […] VMWarella, joka on menettänyt markkinajohtajuutta virtualisoinnin puolella, on muuten ollut aika vaikea vuosi. Ja vaikeammaksi muuttuu, kun Microsoft tuo omaa Hyper-V teknologiaansa muiden palvelintuotteiden […]

  • http://nykanen.net/2008/10/18/virtualappliancesnet/ nykanen.net » Virtualappliances.net

    […] VMWarella, joka on menettänyt markkinajohtajuutta virtualisoinnin puolella, on muuten ollut aika vaikea vuosi. Ja vaikeammaksi muuttuu, kun Microsoft tuo omaa Hyper-V teknologiaansa muiden palvelintuotteiden […]

  • http://www.psynixis.com/blog/ Simon Brocklehurst

    There’s nothing wrong with VMWare as a company in terms of its products. The problem is that the company is way, way overvalued. Always has been since IPO. Even now, it has a P/E of 34; and their profits are just not going to grow fast enough to support that kind of valuation. So the share price still has some way to fall.

  • http://www.psynixis.com/blog/ Simon Brocklehurst

    There’s nothing wrong with VMWare as a company in terms of its products. The problem is that the company is way, way overvalued. Always has been since IPO. Even now, it has a P/E of 34; and their profits are just not going to grow fast enough to support that kind of valuation. So the share price still has some way to fall.

  • VirtBox_xVM

    Seems that, perhaps, Sun Microsystems VIrtualBox and even xVM products are also to blame for the slide in VMware market share. VirtualBox, a relative new comer to Sun’s product line, reached 5 million downloads (as of May 2008). Both VirtualBox and Sun’s xVM Ops Center are free to download. And, IMHO, VB is not too shabby. Has decent guest OS support and it’s free (as in beer).

    Sun reaches 5 million downloads with VirtualBox URL:
    http://www.reuters.com/article/pressRelease/idUS98171+29-May-2008+BW20080529

    xVM Ops Ctr availability announcement
    http://news.moneycentral.msn.com/ticker/article.aspx?Feed=BW&Date=20080910&ID=9124959&Symbol=US:JAVA

  • VirtBox_xVM

    Seems that, perhaps, Sun Microsystems VIrtualBox and even xVM products are also to blame for the slide in VMware market share. VirtualBox, a relative new comer to Sun’s product line, reached 5 million downloads (as of May 2008). Both VirtualBox and Sun’s xVM Ops Center are free to download. And, IMHO, VB is not too shabby. Has decent guest OS support and it’s free (as in beer).

    Sun reaches 5 million downloads with VirtualBox URL:
    http://www.reuters.com/article/pressRelease/idUS98171+29-May-2008+BW20080529

    xVM Ops Ctr availability announcement
    http://news.moneycentral.msn.com/ticker/article.aspx?Feed=BW&Date=20080910&ID=9124959&Symbol=US:JAVA

  • http://www.alliedvisual.com alpha

    I AM DEEPLY AFFECTED BY THIS…………NOT!

  • http://www.alliedvisual.com alpha

    I AM DEEPLY AFFECTED BY THIS…………NOT!

  • Mountie

    Hope they stay afloat, couldn’t imagine my work with out a decent VM prog.

  • Mountie

    Hope they stay afloat, couldn’t imagine my work with out a decent VM prog.

  • http://wshlab3.ee.kuas.edu.tw/wordpress/?p=119 VMWare Update: Two Rough Quarters at PRADA

    […] 轉自TechChunch […]

  • http://wshlab3.ee.kuas.edu.tw/wordpress/?p=119 VMWare Update: Two Rough Quarters at PRADA

    […] 轉自TechChunch […]

  • Paul

    VMWare makes a fantastic product, best of the class.

  • Paul

    VMWare makes a fantastic product, best of the class.

  • http://www.leadsexplorer.com Engago Team

    The Empire (MSFT) strikes back again.
    When MSFT sees a market: beware: your leadership days are counted.

    MSFT is preparing something in the search engines business too. We see too many bots from them since 9months.

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