VMware CEO sees faster cloud, SaaS growth ahead

VMware’s subscription and software-as-a-service (SaaS) revenue jumped 23% in the company’s fiscal Q2 2022, with CEO Raghu Raghuram tipping growth to accelerate further over the next year as it transitions more of its software products to a cloud-based model.

Raghuram previously stated the company is laser focused on growing its cloud business through its subscription and SaaS offerings. However, he noted on the company’s latest earnings call “it turns out that in certain geographies and in certain verticals, given the choice, customers prefer a license software business model over subscription and SaaS business model.”

Despite this, he said VMware remains “very bullish about our overall subscription and SaaS portfolio,” stating many customers start their cloud journey on-premise with term license software before eventually shifting to subscription options.

The CEO added all of VMware’s recent products have come to market with a subscription and SaaS business model. The company is also working to offer a subscription and SaaS option for all of its perpetual license software products, he said.

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“So over the next year, I actually expect our subscription and SaaS business growth to accelerate,” he said. That will likely provide added revenue benefits, Raghuram explained, because when customers move to that model “we also see the increased possibility of upselling and cross-selling them a larger portion of our portfolio more easily.”

Total revenue in VMware’s fiscal Q2 2022 (the three months ending July 30, 2021) increased 9% year-on-year to $3.14 billion. Subscription and SaaS revenue rose 23% to $776 million, with license revenue growing nearly 3% to $738 million. Services revenue of $1.62 billion was up from $1.53 billion in the year-ago quarter.

VMware CFO Zane Rowe said the largest contributors to subscription and SaaS growth were the company’s Cloud Provider Program, End User Computing, Carbon Black and VMware Cloud on AWS.

For its fiscal Q3 2022, VMware forecast total revenue of $3.12 billion, with subscription and SaaS revenue of approximately $823.2 million.

The company said it remains on track to complete its previously announced spin-off from parent Dell Technologies in early November.