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Recently, I had the opportunity to conduct a Q&A interview with Sanjay Poonen, the Chief Operating Officer, Customer Operations, of cloud computing company VMware (VMW). Previously Poonen served as executive vice-president and general for VMware's End-User Computing group.
Prior to joining VMware in 2013 he was President of SAP's Platform Solutions and the Mobile Division, among other roles held at the company. He holds an MBA from Harvard Business School, a master's degree from Stanford University, and a bachelor's degree from Dartmouth College.
VMware is a software company which focuses on cloud computing, platform visualization, and other information technology solutions. It has been at the forefront of hypervisor technology and server virtualization in particular.
The company currently has a public market capitalization of about $63.2 billion and a P/E ratio of 43. The company's TTM revenue is $8.692 billion with $2.490 billion in net income, not counting a roughly $1 billion year-on-year income tax provision hit increase due to the 2017 income tax bill's corporate rate restructuring. The company's 2018 revenue as of far consists of 40.1% from license and 59.9% from services.
The company was acquired by EMC in 2004 and made a public offering in 2007. After Dell's 2015 acquisition of EMC VMware is now owned by Dell Technologies. VMware does not offer a regular dividend but announced this year a special dividend, with a record date in late December, due to a stock buyout with its Dell parent.
Reimer: VMware is on the forefront of the cloud computing sector, which has grown rapidly in the past few years and is expected to continue to do so. What do you believe are the major driving forces right now in cloud computing?
Poonen: Cloud computing represents breathtaking freedom in the business world to swiftly move, grow and transform as fast as the world changes, and delivers numerous benefits that help customers accelerate their digital transformations. We see the need for digital transformation as the major force and use case for enterprises moving to the cloud. Once they begin that transformation to the cloud, benefits include eliminating operational overhead from infrastructure management, providing access to innovative cloud services for application development, deployment, and management, an OPEX financial model that can eliminate hefty upfront financial investments, and the ability to consume infrastructure in a self-service manner that scales environments elastically.
Today, our customers increasingly find themselves navigating a multi-cloud world, which, while offering significant business benefits, can also create a unique set of challenges. VMware has been innovating through a laser focus on solving the key operational, security and management challenges that organizations face when operating in both public and private clouds. Ultimately, that means providing globally consistent infrastructure and operations, while preserving a native developer experience.
Reimer: How has VMware succeeded in the cloud computing industry and how does it expect to continue to do so?
Poonen: With many customers on a multi-cloud journey and simultaneously dealing with the complexity of doing this in a heterogeneous IT infrastructure, VMware excels at helping IT make sense of it all. There are numerous paths organizations can take on their cloud journey. No matter the path, by partnering with VMware, companies have a consistent and strategic operational model across clouds.
Part of VMware’s success can be attributed to deep relationships with industry partners like IBM and AWS. For example, we were pleased to have VMware CEO Pat Gelsinger join Andy Jassy, CEO of Amazon Web Services, on stage at AWS re:Invent in November, where we announced new offerings for their AWS Outposts offering. Together, we can bring consistent hyperscale cloud infrastructure and innovative services to the data center in a jointly engineered solution that can eliminate the customer burden of managing on-premises hardware.
While we work to deliver more innovation to the industry through technology innovations and partnerships, a thoughtful approach to M&A helps fill in other gaps where critical needs emerge. Two examples of this are our recent acquisitions of Wavefront and CloudHealth Technologies. With Wavefront by VMware, we’re providing organizations just beginning to migrate to the cloud with an immediate and intuitive way to dig into deeper insights into their new cloud applications and services. And with the addition of CloudHealth Technologies, we can deliver consistent and actionable view into cost and resource management, security and performance for applications across multiple clouds, including AWS, Microsoft Azure, Google Cloud and VMware-based environments.
Reimer: VMware also operates in platform virtualization, particularly its hypervisors. What are the major trends driving platform virtualization right now and how does VMware see itself gaining amidst it?
Poonen: Today’s enterprises need to rapidly run, manage, connect and secure apps across data centers, clouds and devices. The way to best do that is through a common operating environment, and our virtualization technology is the key ingredient in creating that digital foundation. At VMware, we have been long driving a software-defined approach that extends industry-leading vSphere virtualization beyond compute to network and storage, making data center services as easy and inexpensive to configure and manage as virtual machines. By bringing together best-in-class virtualized compute, storage, and networking, along with comprehensive cloud management, VMware technology forms the digital foundation that allows our customers to innovate freely in the cloud of their choice.
Reimer: What do you think will be the most disruptive developments in the hardware and software industries over the next 1-2 years?
Poonen: We believe the technology trends poised to make the biggest impact over the next one to two years are cloud, mobile, the Internet of Things, and artificial intelligence – the four “superpowers” of tech. Each of these is reinforcing the other, and these “superpowers” are reshaping every aspect of society, from healthcare and education to transportation and financial institutions. Just to illustrate this acceleration: cloud enables mobile connectivity, mobile creates more data, more data makes the AI better, AI enables more edge cases that use IoT technology, and more edge requires more cloud to store and compute the data.
AI isn’t new and has been around for over thirty years. But today, it feels like an overnight success because the algorithms and data have improved to the extent where we can finally bring intelligence to everything. We're seeing dramatic breakthroughs in areas like healthcare, radiology, new drugs, diagnosis tools and designer treatments.
IoT (and “the Edge”) is another area of disruptive development, as the technologies are connecting the physical and digital worlds as never before possible. We see a big opportunity here at VMware – as networks to be secured, automated and patched. And our heritage in the data center and the cloud is the key in bringing world-class IT to the Edge, further creating a truly intelligent world.
Reimer: What makes VMware distinct among the many big tech companies now out there and how does it hope to compete successfully amidst them?
Poonen: What defines and distinguishes VMware is our unique ability to “bridge across” the infrastructure market, partnering with nearly every company in the IT industry, including AWS, Google, Microsoft, Dell, IBM and Hewlett Packard Enterprise.
Also, as we see the technology superpowers (cloud, mobile, AI and IoT) and other areas of innovation emerge and rapidly move forward, many enterprises often start adopting these first in silos. A great example of this today is how many companies are adopting container technologies – it often starts in siloed departments within an organization. And that’s where VMware steps in. Because we provide a consistent infrastructure for applications and data, and an operational model and tools that also remain globally consistent, organizations look for us to help them bridge silos as new technologies are adopted in the enterprise environment, turbocharging their ability to be innovative.
However, we would be remiss if we didn’t talk about how the role we play as a part of Dell Technologies. While we very much operate independent of Dell, which enables us to partner across the industry, we also work seamlessly with development teams at Dell, developing powerful solutions in areas such as hyperconverged infrastructure, digital workspace, and simplifying the deployment and operations of Kubernetes clusters through our VMware PKS solution with Pivotal.
Reimer: Are there any particular VMware products, either current or upcoming, that you think will be particularly essential in driving VMware's growth in the immediate upcoming timeframe?
Poonen: There are a number of areas that will help drive VMware’s growth, but for now, I’ll hit on a few: the customers’ need to integrate public clouds, modernize the data center, transform network and security, empowering a digital workspace, and the opportunity for telecommunications companies accelerate new services with 5G on the horizon.
The world of cloud computing is a massive opportunity still in its early days, and VMware has a major role to play in the space. As businesses expand their use of cloud computing and utilize multiple cloud providers, they naturally experience increased complexity and risk associated with diverse infrastructures, management tools and processes. VMware can take advantage of new revenue streams from the explosion in cloud adoption by helping IT manage, secure and operate in the public cloud, leveraging our experience running the largest data centers in the world and a new set of SaaS tools that provide costs, compliance, and operations insights into the cloud.
But in order to do that, enterprise IT environments must transform their existing environment to support rapid and fundamental changes in businesses and their operating models that cloud creates. Companies will continue to turn to VMware as their digital transformation partner, helping them manage and run a consistent infrastructure and operations across data centers and public clouds that deliver applications with the speed and agility to support business innovation and growth.
But networking models are not keeping pace with the rapidly changing demands of modern business that rely on the cloud and edge services – thus holding back digital business transformation initiatives and strategies. Additionally, the proliferation of distributed applications and services across mobile endpoints, IoT, data centers, public clouds, SaaS, branches and the edge now require a new approach to how security is designed and deployed. To be effective, networking and cybersecurity must be an inherent part of the of the infrastructure. VMware has a significant play in this area, which will help drive our growth.
Also, In the age of mobile and cloud, consumer devices and application experiences are shaping how businesses drive digital transformation. Consumer experience is changing employee expectations, creating new application demands and forging new opportunities to change business processes. However, to reap the full benefits of consumer device and application innovations, you need a platform that collapses the traditional silos between mobile, desktop and even line-of-business application management. Through our End-User Computing portfolio, we enable organizations to create a unified vision for achieving their goals: simplify app & access management, unify endpoint management, and transform windows delivery.
Another area where we see a lot of headroom is the telco space. The telco network – which is less than 10 percent virtualized – represents the next major market for us. The technologies VMware created for the data center can be applied in telco networks, and the need for this will grow as there is an enormous buildout coming with 5G.
Reimer: What are the biggest challenges VMware is currently facing and how does it hope to address them?
The past year we celebrated the milestone of 20 years as an industry pioneer. When the company launched in February 1998, we transformed the data center by bringing virtualization -- the core principle of cloud computing -- to the mainstream. Twenty years later, we remain just as focused on innovating in everything we do, and committed to solving the most difficult technology problems for our customers. We apply the same principles of virtualization and software innovation to securely connect, manage and automate the world's complex digital infrastructure.
But at the same time, technology is iterating and improving at a rapid clip. We know we must “innovate in everything we do,” envision the opportunities ahead, and apply our principles to growing technology areas to be a force for good by solving the major societal problems of today and tomorrow. Software, as we see it, has the power to transform business and humanity. We're here to make that happen.
There is so much more to come as we test the boundaries of what is possible.
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This article was originally published as a non-exclusive article on Seeking Alpha as part of Tech Investment Insights.