VMware Earnings Preview: 5 Things To Watch Out For

Here are five key things to watch out for during VMware’s second quarter financial earnings report this week around layoffs, subscription and SaaS revenue, and Dell Technologies.

VMware Second Quarter Earnings

The virtualization and rising hybrid cloud superstar is set to report its second fiscal quarter financial earnings this week as VMware continues to try to fight off any sales drop during the coronavirus pandemic.

The pandemic didn’t slow down VMware sales during the beginning of COVID-19, from February through April, as the company reported first fiscal quarter revenue of $2.73 billion, an increase of 12 percent year over year. “We serve as an essential digital service to those customers who provide essential services, helping them scale efficiently and more securely,” said VMware CEO Pat Gelsinger during the company’s first quarter earnings report in late May.

VMware will report its second fiscal quarter financial results on Aug. 27 at 4:30 p.m. ET. Here are the five things VMware channel partners, investors and customers should know heading into Thursday’s financial earning report.

VMware Estimated Q2 Revenue: $2.8 Billion

According to Zacks Consensus Estimate, VMware will post second quarter earnings of $1.45 per share along with approximately $2.8 billion in revenue, representing a nearly 15 percent increase in sales compared to the same quarter one year ago. The $1.45 per share would be a decline of roughly 9 percent year over year.

Zacks said VMware has recently built stronger strategic cloud partnerships with AWS, IBM and Microsoft that will help VMware achieve the 15 percent year-over-year sales increase, as well as solid market adoption for its cloud, networking, end user computing and security solutions. It is key to note that VMware has beat Zacks Consensus Estimate in three out of the last four quarters.

Layoff Talks

Although VMware has a large employee base of approximately 31,000 employees, the company has confirmed two rounds of job cuts this year so far.

This month, VMware confirmed to CRN that the company is laying off an undisclosed number of employees, including Shawn Toldo, vice president of VMware’s Worldwide Partner Organization.

“We can confirm that there have been a limited number of changes to our workforce this month,” said VMware in a statement to CRN at the time. “This is part of a regular workforce rebalancing as we realign resources and investments to opportunities at scale.”

In January, VMware also confirmed to CRN that it was laying off an unspecified amount of employees as part of its annual “workforce rebalancing” aimed at ensuring resources across its across global businesses and geographies were aligned to customers and objectives.

It will be interesting to hear if VMware executives address these two rounds of layoffs during its financial earnings call with investors and media on Thursday.

Can Subscription And SaaS Sales Reach 25%?

VMware is striving to boost its subscription and Software-as-a-Service (SaaS) sales to account for a larger portion of its total revenue. VMware has succeeded in massively growing its subscription and SaaS revenue, but has yet to have it represent at least 25 percent of its total revenue.

In VMware’s most recent first fiscal quarter 2021, the company generated subscription and SaaS revenues of $572 million, up 39 percent year over year, accounting for 21 percent of VMware’s overall sales during the quarter.

For its fourth fiscal quarter 2020, VMware generated subscription and SaaS revenues of $556 million, up a whopping 52 percent year over year, accounting for 18 percent of VMware’s overall sales during the quarter.

It will be a major milestone for VMware if subscription and SaaS revenues reach new heights and account for one-fourth of the company’s total revenue in its second fiscal quarter.

Innovation Expected To Drive Top Line Revenue

The innovation engine at VMware has been full steam ahead during the coronavirus. In August alone, VMware launched new versions of its Fusion and Workstation desktop hypervisor solutions, as well as new innovation across its portfolio of vRealize Cloud Management on-premises and SaaS offerings.

In May, VMware’s chief operating officer Sanjay Poonen (pictured) told CRN that the company’s engineers and developers haven’t skipped a beat in terms of new innovation while working at home during COVID-19.

“This quarter, we had some one of the best months ever in our history for releasing the most IP of VMware. We had a release of vSphere, that’s our flagship product, and we had new releases of vSAN, NSX, VMware Cloud Foundation, vRealize, Tanzu and even Carbon Black,” said Poonen in an interview with CRN. “I mean we just [boosted] the full portfolio. It was amazing because even as we went to shelter in place, the engineers didn’t lose one heartbeat in getting those products out in time with high quality.”

Additionally, VMware launched some tailor-made work-from-home solutions around virtual desktop infrastructure and business continuity offers. VMware will likely highlight at least a few of the its fastest growing products and services that drove revenue during its second quarter.

Dell Technologies Earnings

VMware is majority-owned by Dell Technologies, which owns an 81 percent stake in the virtualization star stemming from its 2016 acquisition of EMC. VMware and Dell are tightly aligned around joint-engineering, end-to-end architectures and channel partners, with Dell Technologies CEO Michael Dell being chairman of VMware’s board.

Dell and VMware are both reporting their second-quarter financial earnings within just one hour of each other on Thursday, Aug. 27.

According to Zacks Consensus Estimate, Dell is expected to report second fiscal quarter earnings of $22.46 billion, representing a 4 percent decline year over year. Zacks said a surge in remote working and network traffic are likely key catalysts driving sales for Dell Technologies, along with strong spending by customers on data centers and communications-related infrastructure during COVID-19.

It will be interesting to see if sales from the IT market leader in storage, servers and hyperconverged infrastructure continue to be relatively stable amidst the coronavirus pandemic alongside VMware.