VMware Inc. (VMW)’s incoming chief executive officer, Pat Gelsinger, plans to accelerate growth by expanding in software for managing computer networks and storage devices, stepping up competition with Cisco Systems Inc. (CSCO)
VMware’s $1.26 billion acquisition of Nicira Inc. is part of a strategy Gelsinger called the “software-defined data center.” His goal is to supply tools that let businesses move to cloud computing by more readily shifting network capacity, storage and processing power to applications that need it, he said in a keynote address yesterday at the company’s VMworld conference in San Francisco.
Gelsinger, who becomes CEO Sept. 1, is seeking to reignite growth and position Palo Alto, California-based VMware to gain a greater share of corporate technology spending by branching out into software that controls more parts of their data centers, including networking gear, according to Brent Thill, a UBS AG analyst. Software license sales will increase 13 percent to $2.1 billion this year, after climbing 31 percent in 2011, Thill said in an Aug. 22 report.
“If we look in the data center of today we see a museum of the past,” Gelsinger said. “It’s time to move on.”
The strategy may pose an increased competitive threat to Cisco, the largest maker of computer-networking gear, as it faces a new breed of software helping customers handle data traffic with fewer switches and routers. VMware and EMC Corp. (EMC), its majority owner, are now competing more with Cisco in data- center management tools, three years after the three companies teamed up to sell combinations of networking equipment, storage and VMware’s server-virtualization software.
“I don’t expect the tension to get resolved anytime soon,” said Frank Gillett, an analyst at Forrester Research.
VMware is the largest maker of virtualization tools, and buying Nicira gives it software for moving network capacity where it’s needed. Demand for cheaper ways to manage a rising flood of information over networks will propel software-related networking revenue to $17 billion worldwide by 2016, from $6 billion last year, according to Pacific Crest Securities. Oracle Corp. (ORCL) also pushed into the market with its July purchase of Xsigo Systems Inc.
Nicira technology can be used to create a network that spans applications virtualized with VMware and other computing workloads, saving customers time, outgoing CEO Paul Maritz said at a press conference yesterday.
Gelsinger told reporters Nicira was a “bold” acquisition, while allowing VMware would continue to cooperate with Cisco.
“Almost no revenue and $1.26 billion -- so that’s bold,” Gelsinger said. VMware and Cisco said yesterday they would expand their partnership by investing more in engineering needed to make their products work well in tandem.
VMware also simplified pricing for its own users. A bundle of virtualization software called the vCloud Suite 5.1 will be available Sept. 11 in three editions priced starting at $4,995 per processor, VMware said yesterday in a statement. The new pricing replaces an old cost structure that had been based on the memory customers used, making expenses less predictable.
“We’d made things overly complex, so we are rectifying that mistake,” Maritz said.
Many potential clients are also not comfortable putting their applications into someone else’s data center, which would give VMware an edge over cloud providers such as Google Inc. (GOOG) and Amazon.com Inc. (AMZN), Maritz said in an interview yesterday. “We’re not believers that all the world’s computing has to go into two or three uber-clouds.”
Gelsinger, who takes over from Maritz, had spent the last three years as chief operating officer at EMC. Prior to that, he had spent 30 years at chipmaker Intel Corp. (INTC) and ran the company’s business products division.
Maritz, a former Microsoft Corp. (MSFT) executive who joined EMC in 2008 and became VMware’s CEO that year, is returning to EMC as a technology strategist.
EMC and VMware began planning the CEO transition late last year to let each executive devote the time to attacking the market for delivering insights from so-called big data, both said in an interview. Gelsinger said his new job isn’t a “warm- up” for eventually succeeding EMC CEO Joe Tucci.
“That’s just nonsense,” he said, adding that he’d like to be VMware’s CEO for “one to two decades.”
Microsoft, which offers competing virtualization software as part of its Windows Server product, plans to release a new version on Sept. 4.
“This is not a new strategy for Microsoft,” said Maritz. “This is the third or fourth time they’re coming to market saying, ‘Our product is now good enough.’ ”
Shares of VMware declined 1.6 percent to $90.82 at the close in New York. The shares have gained 9.2 percent this year.
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