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Enterprise adoption of VMware technology for cloud, SDN rises

Licensing of VMware technology for the software-defined data center rose significantly in the second quarter. Sales of older virtualization products continued to decline.

VMware reported a strong second quarter and raised its revenue forecast for the rest of the year, as license bookings for its software-defined networking product doubled.

The number of customers for the virtualization vendor's SDN software, NSX, rose to more than 1,700, the company said in releasing quarterly earnings this week. Also exceeding expectations was VMware technology for hyper-converged systems -- Virtual SAN (VSAN) and VxRail. VMware said bookings for the products had tripled.

Progress in what VMware calls its new product areas is necessary to show investors it can successfully enter growth markets to counter falling sales of its traditional server virtualization technology, which is centered on vSphere. License bookings for VMware technology fell roughly 10% to less than 30% of total bookings.

VMware said it has reached a point where enterprise customers have tested its new products long enough to feel comfortable in moving to production in cloud environments. "We feel like now we've crossed that initial chasm, and we really are seeing the tornado of adoption," VMware CEO Pat Gelsinger told financial analysts during a teleconference.

For the rest of the year, VMware expects bookings for its new products to continue to offset declining sales of its traditional virtualization software. "We see nothing changing in the second half that we're not going to continue to see that kind of growth in the new product areas," Gelsinger said.

VMware technology for hyper-converged systems taking off

The performance of VMware's hyper-converged portfolio, particularly vSAN, made it the "rock star" in the quarter, Gelsinger said. Factors driving higher revenues included more enterprises worldwide taking the technology into production. Gelsinger singled out healthcare and midmarket enterprises as areas where VMware signed large deals in the quarter.

VMware also reported what it described as strong double-digit revenue growth in its software-as-a-service products, which include AirWatch, Desktop as a Service and vRealize as a Service, and its infrastructure products for hybrid clouds, which include vCloud Air and vCloud Air Network. Together, SaaS and hybrid cloud products accounted for 8% of total revenue.

Overall, revenue grew by 11% year over year to $1.69 billion, VMware reported. Net income rose 54% to $265 million. For the rest of the year, the company forecasted revenues between $6.95 billion and $7.05 billion, with license revenues from $2.704 billion to $2.764 billion.

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