Is Microsoft Hyper-V Impacting VMware’s Earnings?
VMware recently announced that they were going to cut jobs and realign their products in 2013 – and their valuation (stock price) has taken a huge hit as well. There’s been a huge amount of media coverage of this – from InformationWeek to TechTarget to Business Insider and many more. The transcript of the Q4 2012 earnings call may be found here.
VMware actually announced revenue growth of 22% to $1.29B and net income excluding one time items of 81 cents a share up from 62 cents a share earlier. The expectation was 78 cents a share. Sounds like a solid performance – so why has VMware’s valuation taking such a hit?
Some authors have focused on the announced layoffs of about 7% of the company (900 jobs). But it’s not clear that this isn’t just reconciliation from all of the M&A buys that VMware has made. The real reason that the company’s valuation has dropped by over 20% (at the time this is being written) is VMware’s forecast for 2013. VMware is forecasting fiscal 2013 revenue of $5.23B to $5.35B. Wall Street had predicted $5.42B. For Q1-2013, VMware forecasted $1.17B to $1.19B in revenue – while Wall Street had predicted $1.25B.
So why is VMware, at least in the minds of Wall Street analysts, calling down their revenue growth? Some articles have noted that virtualization penetration will naturally slow as it continues to climb. Other articles have noted an increasing competitive landscape. And that’s where the fundamental question lies: how much of this is due to increased competition with Microsoft’s Windows Server 2012 and Hyper-V?
Clearly I don’t have greater insight than the plethora of journalists and analysts that follow VMware and Microsoft. But I do have access to information concerning downloads of our Unitrends Enteprise Backup(TM) Free Edition – the version that lets you protect up to 4 VMs for free. We’re seeing 40% of our downloads being performed for Hyper-V virtual appliances. This is above the typical market share for midrange and smaller businesses for Hyper-V of 25% to 30%. And the trend isn’t abating, but is strong and growing stronger. And it’s not concentrated on small business either – midrange and even global 1000 companies seem to be increasingly evaluating and in some cases moving to Hyper-V.
Do I think this means the end for VMware? Of course not. Strong company – outstanding virtualization suite of products – I think a lot of them both technically and in terms of the business that they run. But I do think that Microsoft is doing what Microsoft always does – tenaciously delivering increasingly valuable products after their initial release – and the market seems to be noticing.
What do you think?
