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VMware has reported strong sales of its software-defined networking platform NSX as the company gears up to compete against Cisco in an emerging market that’s expected to become a major revenue driver.
VMware reported this week that the number of NSX customers rose to 700 in the second quarter from 150 a year ago. The company also reported in releasing earnings that five of its top 10 deals in the quarter included NSX, citing a renewal agreement with the U.S. Postal Service as an example.
"The increase in the number of NSX customers shows continued momentum in
SDN adoption," said Dan Conde, analyst for the Enterprise Strategy Group Inc., based in Milford, Mass.
Cisco has also reported strong growth for its software-defined networking (SDN) platform, Application Centric Infrastructure (ACI). For the fiscal quarter ended in April, the company said it added 231 ACI customers for a total of 585.
Different approaches to SDN
VMware and Cisco take different approaches to SDN. Cisco has built ACI on top of its hardware -- particularly its Nexus 9000 switches -- while VMware has taken a purely software approach that's hardware agnostic.
Becoming a major SDN provider is important for growth in both companies. The network control provided in traditional Cisco hardware is gradually being replaced by software that can run on a commodity server. VMware needs new products like NSX, as license bookings tilt away from the company's traditional server virtualization platform, vSphere.
Two years ago, standalone vSphere accounted for roughly 65% of bookings, which is when a company commits to buying a product. In the second quarter, that number was 40%. VMware expects growth in 2016 to be driven by new products, such as NSX and AirWatch, a mobile device management tool that VMware purchased last year.
While NSX and ACI compete as SDN platforms, it's possible to mix products from their respective vendors. "NSX customers still need a physical network underlay, and Cisco Nexus switches are an option, among other devices," Conde said.
The horse race has just begun
SDN sales for Cisco and VMware are confined mostly to their respective customers, so the real horse race won't begin until they start going head-to-head during sales calls.
"If you insist upon the horse race metaphor, I will say that we're still some distance from the finish line -- probably just rounding the clubhouse turn -- so there's still a lot of race to be run," said Brad Casemore, analyst for IDC, based in Framingham, Mass.
In the quarter ended in June, VMware reported a year-to-year revenue increase of 4% to $1.6 billion, which excluded a $75.5 million overbilling settlement with the U.S. Department of Justice. Profit rose from $167 million a year ago to $172 million.
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