Over the past 12 to 18 months, an interesting split has opened up in the performance of enterprise IT giants: While companies depending heavily on hardware and IT services revenue streams have often struggled to deliver positive sales growth, several of their software-focused peers have fared much better.
The divide says a lot about how the adoption of cloud apps and infrastructure services has been a tsunami that certain types of old-guard enterprise IT firms are much better-equipped to handle than others. And also the degree to which IT spending, whether in the cloud or elsewhere, continues shifting toward software relative to hardware.
Virtualization software giant VMware Inc. (VMW) served up the latest evidence of this split on Tuesday, when it issued its second full-year guidance hike in less than three months. VMware now expects fiscal 2018 (ends in January 2018) total revenue and license revenue to each rise 10%, better than prior guidance for 7% and 6% growth. The company also hiked its July quarter guidance, estimating total revenue grew 11.9% to 12.6% and license revenue 12.9% to 14.4%.
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Things looked very different in the first quarter of 2016. Then, VMware's license revenue (drives future maintenance revenue) fell 1% annually due to weak demand for its mainstay vSphere server virtualization platform amid growing use of cloud infrastructures relying on non-VMware virtualization software. Total revenue, propped up by maintenance contracts for past license deals, grew a modest 5%.
Today, enterprise vSphere sales are still under pressure. But VMware is offsetting this with strong growth for its NSX network virtualization and vSAN storage virtualization platforms, as well as healthy demand for its PC virtualization and enterprise mobility software offerings. The company is also getting a boost from software sales to cloud service providers that are part of its vCloud Air Network ecosystem, and -- though it's still early -- claims it's seeing strong interest for a managed cloud serviceit's launching for companies looking to run vSphere workloads in both their own data centers and on Amazon Web Services (AWS).
Microsoft Corp. (MSFT) has seen its top-line growth improved markedly in recent quarters as well. After excluding the impact of the LinkedIn acquisition, the company's total GAAP revenue rose 8% in the June quarter, a sharp contrast to the 9% decline seen in fiscal 2016 (ended in June 2016).