Virtualization solutions provider VMware (NYSE:VMW) reported its second-quarter results after the market closed on Aug. 23. Revenue continued to grow at a double-digit pace, driven by the rapid growth of NSX and vSAN, although that growth rate did slow down compared to the first quarter. With parent company Dell dropping any plans for a merger or other exotic transaction, a cloud of uncertainty has been lifted. Although VMware is on the hook for a giant one-time dividend.

VMware: The raw numbers


Q2 2019

Q2 2018*

Year-Over-Year Change


$2.17 billion

$1.93 billion


GAAP net income

$644 million

$406 million


GAAP earnings per share




Non-GAAP earnings per share




Data source: VMware. *Q2 2018 numbers adjusted to reflect the adoption of ASC 606..

What happened with VMware this quarter?

  • License revenue increased 14.9% year over year to $900 million.
  • Services revenue rose 10.9% year over year to $1.27 billion.
  • Hybrid cloud subscription and software-as-a-service accounted for 10% of total revenue, unchanged from the first quarter.
  • NSX license bookings grew by 40% year over year, while vSAN license bookings rose 70%.
  • Eighty-two Fortune 100 companies have now adopted NSX, and 9 of the top 10 deals during the quarter included NSX.
  • More than 60% of vSAN customers use vSAN to run business-critical applications.
  • Total bookings for compute rose by a mid-single digit percentage, while total bookings for management increased by a high-teens percentage.
  • Enterprise agreements accounted for 45% of total bookings, up from 36% in the first quarter. VMware signed 13 deals valued over $10 million in the second quarter, compared to just five in the first quarter.

VMware provided the following guidance:

  • Third-quarter revenue of $2.165 billion is expected, representing year-over-year growth of 11.7%. License revenue is expected to grow by 14.1% to $865 million.
  • Third-quarter non-GAAP EPS of $1.50 is expected, with a 33% non-GAAP operating margin.
  • Full-year revenue of $8.82 billion is expected, representing growth of 12.2%.
  • Full-year non-GAAP earnings per share of $6.14 is expected, with a 33.8% non-GAAP operating margin.
  • VMware expects to generate free cash flow of $3.295 billion for the full year.
Servers in a data center.

Image source: Getty Images.

What management had to say

VMware CEO Pat Gelsinger commented during the earnings call on Dell's plan to go public by exchanging each share of VMware tracking stock for shares of its new Class C common stock:

Finally, we were pleased with Dell's announcement on July 2 regarding the conclusion of their strategic review. Dell Technologies plans to offer a new class of publicly listed common stock following the completion of a proposed exchange of Dell Class B tracking stock for Dell Technologies Class C common stock or cash. This action will simplify Dell's capital structure and increase alignment with VMware while maintaining VMware's independence.

As part of the deal, VMware will pay out an $11 billion one-time dividend, with about $9 billion going to Dell.

CFO Zane Rowe discussed the success of VxRail:

We also saw a significant milestone in Q2 with Dell's VxRail, the largest hyperconverged appliance running vSAN, which surpassed $1 billion in cumulative and annual run-rate bookings. This product acceleration with vSAN technology is gaining momentum and performance is exceeding our expectations.

Looking forward

With Dell finally choosing a path forward, a layer of uncertainty for VMware has been removed. The deal won't affect VMware's business, although the special dividend will knock down its cash balance.

VMware's overall growth rate slowed a bit in the second quarter, and its third-quarter guidance calls for an additional slowdown. But earnings are growing at a faster pace, and growth products like NSX and vSAN are performing well.

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