To that end, EMC said today that VMware added $80 million in sales to the kitty in the first quarter ended March 31, an increase of 104% compared to the first quarter of sales this time last year. VMware said that that triple-digit revenue growth was driven by new license sales, which accounted for 80% of its sales in the quarter, about $64 million when you do the math.
Raghu Raghuram, senior director of strategy and market development at VMware, said in an interview today that sales in the Workstation product line and in the server products, represented by GSX Server, ESX Server, and special bundles of its software, were all growing very nicely. As for the new Workstation 5 product, Mr Raghuram said that VMware’s servers were getting slammed on the downloads for the new product.
While not providing any sense of what the revenue breakdown was by product category during the quarter, Mr Raghuram said that nearly all of its sales on the server side were for its Virtual Infrastructure bundles, which put together its ESX Server virtual machine partitioning software, its VirtualCenter management console, its VMotion and VirtualSMP add-ons (which allow partitions to jump between physical machines and which allow partitions to span multiple processors, respectively).
VMware has an installed based of about 3 million seats for its Workstation products, and has about 10,000 customers for its server products. It is focused on bringing virtual machine partitioning to the workstation and server masses, and that focus on the dominant X86 market and on tools for developers, high-end workstation users, and server buyers who want to boost the utilization of their servers by making them handle more than one operating system at a time is what is driving its growth.
Like all markets with cool ideas, they start out small, grow fast, and eventually hit a more normal growth rate. When EMC bought VMware, it was undoubtedly betting that it would get a relatively quick return on its investment – not to mention a lot of good PR and a dominant position in a server market in which it was not formerly a player. And that bet turns out to have been a very good one.
VMware posted sales of $218.2 million in all of 2004 – about $39 million in Q1, $51 million in Q2, $61 million in Q3, and $71 million in Q4; it had sales of about $20 million in Q3 of 2003 and about $25 million in Q4 2003. Cumulative sales since EMC took over the company are $298.2 million, or about 48% of the purchase price of VMware back in early January 2004 when the deal closed.
If present trends persist and VMware is able to hold that triple-digit growth rate, then it should have sales of about $104 million in the second quarter of this year, followed by about $125 million in Q3 and $145 million in Q4. That’s $455 million for all of 2005, and added to the $218.2 million, that’s $673 million. Somewhere around Halloween this year, EMC should have got all of its VMware money back, and it will be gravy from there on out.
And just because Intel and Advanced Micro Devices are adding virtualization features to their future processors, and the Xen open source project is going to present an alternative to VMware’s closed-source virtual machine partitioning products, does not mean the prospects are bad for VMware.
On the contrary. According to Mr Raghuram, the virtualization features that come with Intel’s Virtualization Technology or AMD’s Pacifica technology, due respectively in the Montecito Itaniums and future Xeons from Intel and in future Opteron processors from AMD, are only implementing instruction set virtualization in the chip rather than in VMware’s hypervisor (or, indeed, the Xen hypervisor).
However, to make a virtualized workstation or server environment, you have to virtualize memory – carving up a gob of main memory into pieces for each virtual machine and making sure that virtualized servers share memory for common functions so they use memory efficiently. Products like Workstation and ESX Server are very good at this, according to Mr Raghuram. Similarly, the virtualization software also has to do I/O virtualization, providing disk and network I/O access for each partition.
These last two features are not going to be embedded in processors for a long time – perhaps years. (They will be embedded in systems eventually, however, in some form. It is the nature of the IT industry to do this wherever possible. It is a question of transistor counts and standardization.)
VMware will continue to add value even after this happens by adding other virtualization features (considering its parent is EMC, you can reckon that storage virtualization is going to somehow play into this). Mr Raghuram says that some things, like the virtual switch inside Workstation that can control access to network and I/O resources, are best implemented in software and will never be done in hardware inside a virtualized environment. In short, he says that VMware has plenty of opportunities to take its nearly unique knowledge and apply it to IT problems.
While VMware is watching the virtualization being offered by Virtual Iron, which sells a hypervisor to glue many Linux systems into a single virtual machine, and by Azul Systems, which has just launched specialized servers to run Java Virtual Machines, Mr Raghuram says that VMware is not planning on going in those directions. There is plenty of virtualization of higher-value functions that he says VMware can bring to market. What they are, he isn’t quite ready to say yet.
But we can guess, and the new version of Workstation presents some clues in that it embeds a virtual switch created entirely in software inside a single machine and can simulate an entire network for developers to use to simulate the physical servers they deploy applications on. Imagine if you could simulate an entire n-tier architecture – infrastructure servers, application servers, database servers, and the switches that link them – on virtual machines inside midrange SMP boxes with many dual-core or four-core processors. You could put what is today an entire network inside a single box.
