Virtualization Reigns

According to IDC, more than 23% of all servers shipped in 2014 will actively support virtual machine technology, and more than 70% of all server workloads installed on new shipments in 2014 will reside in a virtual machine. The researcher estimates that more than $19 billion will be spent on server hardware in support of these applications, with shipments of virtualized servers growing at an annual rate of 14%. In a recently conducted survey of over 2,000 CIOs by Gartner, the CIOs said that their priority investments in the coming years will be in cloud computing and virtualization. Both EMC and VMWare are already benefiting from this trend.

EMC’s Financials
EMC (NASDAQ:EMC) saw Q4 revenues increase 19% over the year to $4.9 billion, ahead of the market’s expectations of $4.78 billion. EPS of $0.42 also managed to exceed the market’s projections of $0.41. For the year, revenues grew 21% to $17.0 billion and EPS grew 40% over the year to $1.26.

EMC projects full-year revenues of $16.9 billion with EPS of $1.25. The market is expecting revenues of $16.7 billion and EPS of $1.21. EMC plans to repurchase $1.5 billion in company stock in the current year.

EMC’s Acquisitions
EMC is making strategic acquisitions to target high-growth market segments. As part of their focus to address the “big data” phenomenon, they recently acquired Isilon Systems, a Seattle-based data storage firm, for $2.25 billion. Isilon Systems is a leading player in the network attached storage (NAS) segment that lets organizations manage huge quantities of data for multimedia, online services, and other applications. Isilon reported revenues of $123 million in 2009 and has over 1,200 customers, including Sony and Eastman Kodak. EMC will combine Isilon’s products with their Atmos line to provide complete storage infrastructure to handle applications such as DNA research and online streaming, which generate huge amounts of information. Analysts estimate the NAS segment market to be worth $6 billion by 2014.

Earlier last quarter, EMC also bought Bus-Tech, a storage virtualization firm. Bus-Tech provides virtual tape library technology used to store and retrieve mainframe tape data and allows mainframe users to move from tape infrastructure to disk-based backup solutions. Their technology is expected to complement EMC’s disk library and deduplication storage systems.

EMC’s stock is trading at a 52-week high of $26.00, down slightly from its 52-week high of $26.09 reached yesterday, with a market capitalization of $53 billion.

VMWare’s Financials
VMWare’s (NYSE:VMW) Q4 revenues grew 37% over the year to $836 million and exceeded the market’s expectations of $803.9 million. EPS of $0.46 was also ahead of previous year’s $0.31 and the market’s expected $0.44.

For the year, revenues increased 41% to $2.86 billion and EPS increased 71% to $0.84. License revenues grew 36% over the year to $1.4 billion, and service revenues grew 46% over the year to $1.5 billion. Domestic revenues grew 40% to $1.5 billion while international revenues were up 43% to $1.4 billion.

For the current quarter, VMWare expects revenues of $800 million–$820 million, ahead of the market’s expectations of $786 million. For the year, they expect revenues of $3.45 billion–$3.55 billion, compared with the analyst projections of $3.42 billion. However, EMC is not projecting any expansion in margins in the current year and expects it to be flat at 28%–29% for the year compared with the 28.5% earned in 2010.

VMWare’s Expansion of Cloud Products
VMware is working to expand their cloud-based offerings. They recently announced plans to provide a complete suite of cloud-based development and collaboration tools that will help to simplify application development in the cloud. As part of VMware’s Cloud Application Platform strategy, Code2Cloud will be based on open source development projects and will be able to deliver a unified, setup-free development infrastructure to deliver cloud as a service. The company is also working on providing a desktop virtualization solution based on the Cisco Unified Computing System (UCS) to accelerate deployment of virtual desktop solutions while reducing risk and total cost of ownership.

VMWare’s Acquisitions
VMWare also continued making acquisitions and earlier last month announced the acquisition of NeoAccel, a computer network security provider. NeoAccel’s solutions help provide end-to-end security for cloud computing and are expected to complement VMWare’s service by enabling them to secure the edge of their hybrid clouds as well as the applications and virtual desktops running on them.

VMWare’s stock is trading at $88.66 with a market capitalization of $37 billion. It touched a 52-week high of $97.61 earlier last month.