Pat Gelsinger (VMware)
VMware is moving in the direction of cloud and security amid plans to build out new in-market offerings at the enterprise level.
In taking control of Pivotal and Carbon Black - revealed on the eve of VMworld 2019 - VMware unveiled acquisitions number 10 and 11 during the past 12 months as plans to bolster capabilities in growth areas gather pace.
As reported by Channel Asia, the vendor took things up a notch with the intention to spend US$4.2 billion to acquire cloud-development firm Pivotal and security provider Carbon Black.
Revealed during a quarterly financial call, VMware will spend about $2.7 billion on Pivotal and its Cloud Foundry hybrid cloud development technology and another $2.1 billion for Carbon Black, which includes its Predictive Security Cloud offering and other endpoint-security software.
The double acquisition represents new territory for the virtualisation giant as CEO Pat Gelsinger attempts to balance staying true to core offerings while expanding at the fringes.
“VMware continues to post double-digit growth quarter after quarter, navigating enterprise cloud migrations in a sustainable and profitable way as it maintains its legacy install base and expands its cloud options,” observed Cassandra Mooshian, senior analyst of enterprise technology, Ovum.
“The vendor is aiming to evolve in line with customer demand and hedge against the financial impact of declining demand for legacy IT solutions by expanding its cloud-native portfolio and embracing Kubernetes.”
In doing so, Mooshian said VMware is “maintaining its acquisitive strategy” alongside continuing to promote “increasingly strategic partnerships” with public cloud providers such as Microsoft, “despite competition between the two companies at the virtual machine layer”.
“VMware’s core areas of strength continue to centre around the virtualisation layer, helping customers run and manage their legacy, cloud and hybrid IT environments,” Mooshian added.
“Many of the company’s purchases in recent months, however, have focused on improving its management capabilities as enterprise environments continue to evolve, adding capabilities behind and adjacent to vRealize via CloudHealth Technologies, for example.
“VMware also has a particular focus on helping customers to build out their environments, adding Kubernetes capabilities with Heptio, Bitnami, and now Pivotal as enterprises demand portability and interoperability/openness across their increasingly hybrid IT environments.”
VMware has deep relationships with both newly acquired businesses. Carbon Black technology is part of VMware’s AppDefense end point security product while Pivotal has a deeper relationship in that VMware and Dell, VMware’s parent company spun out Pivotal in 2013.
“As VMware continues to build out its portfolio and the breadth of its cloud-native offerings, it has also invested to evolve its security strategy and solutions to protect customer data with the acquisition of Carbon Black to offer customers enhanced enterprise-grade, cloud-native security solutions,” said Mooshian, referencing that Carbon Black’s IPO was less than 18 months ago after the business went public on 4 May 2018.
“It has shown strong but decelerating growth, with a notable deceleration in billings growth as of CY2018 foreshadowing difficulties ahead as a standalone company.
"Carbon Black’s share price has inched near its IPO price of nearly $24, most recently reaching above the $26 mark after VMware’s announcement."
Meanwhile, the acquisition of Pivotal comes less than 18 months after the vendor'sown IPO on 20 April 2018.
“Since then, the company has reported strong but decelerating revenue growth as its base increased (it now has more than 380 subscription customers) amid notable share price fluctuations,” Mooshian added. “Prior to the VMware announcement, Pivotal’s shares were at an all-time low, but have since been on the rise and are now inching near the opening price of more than $15.”
Mooshian said this transaction is “unique” because Dell Technologies owns a majority stake in each of the two companies and VMware already holds 15 per cent of Pivotal’s diluted outstanding shares.
“Reportedly, the net cash payout for VMware to complete the transaction will be $800 million,” speculated Mooshian. “When it is complete, Dell Technologies will own 81.09 per cent of VMware.”
