Updated:

Amid a quarterly earnings season that’s a mixed bag for infrastructure players, VMware Inc. furnished the best evidence yet that it has successfully navigated the transition from server specialist to strategic information technology partner.

The virtualization giant today reported fiscal fourth-quarter revenue and profits that both handily beat analyst estimates on the strength of larger deal sizes and strong performance in the high-growth areas of its portfolio.

Revenue rose 16 percent from a year ago, to $2.59 billion, well ahead of analysts’ estimates of $2.49 billion. Adjusted profits of $1.98 per share were a dime better than expectations. VMware shares rose about 2.5 percent in after-hours trading. Update: Shares rose almost 4 percent on Friday.

For fiscal year 2019, revenue grew 14 percent, to $8.97 billion, from fiscal 2018. License revenue rose 18 percent, to $3.79 billion. VMware said it expects to top $10 billion for the first time in fiscal 2020 on 11.8 percent growth.

“Q4 was a terrific ending to a strong fiscal 2019, driven by broad-based strength across our diverse product portfolio and in all three geographies, particularly Asia-Pacific,” said Chief Executive Pat Gelsinger (pictured). During the quarter the company closed a record 23 deals of $10 million or greater and booked its first $20 million deal. More than half of total bookings came from enterprise customers.

Beyond servers

That’s a testament to VMware’s success in diversifying its virtualization product family beyond computing and into storage and networks. Of the 10 largest deals the company closed in the quarter, eight included vSAN software for hyperconverged infrastructure, nine included the NSX network virtualization layer and all 10 included core server virtualization and management. NSX sales surpassed $500 million for the quarter and $1.3 billion for the year, while vSAN license bookings grew 60 percent.

“Server virtualization has become much less of VMware’s business as it expands; NSX is just one major catalyst in this expansion,” said Glenn O’Donnell, vice president and research director at Forrester Research Inc. The company’s hyperconverged offering has also shown impressive performance, he noted. “It has become a leading player in a short time.”

With NSX, VMware has set its sights squarely on market leader Cisco Systems Inc. and is clearly hitting the mark, said Charles King, president and principal analyst at Pund-IT Inc. Earlier this week, the company announced what it called the the most significant upgrade ever to NSX with enhancements that expand its scope beyond the VMware hypervisor for the first time.

“By investing in NSX, VMware has helped push network virtualization ahead further and faster than it might have gone otherwise,” King said. “It also gave enterprise customers good reasons to stay engaged and stay put as network virtualization became an increasingly critical element in their operations.”

Gelsinger said the larger deal sizes indicate that customers are “going from compute to a complete solution. Those deals become larger and more strategic because customer are now buying the full data center from us,” he said.

Hybrid and multicloud partner

The market is also buying into VMware’s new positioning as a hybrid and multicloud manager, Gelsinger said. Hybrid cloud and software-as-a service subscriptions made up 10 percent of total revenue in the quarter, up 35 percent year-over-year.

Customers are increasingly buying into VMware’s pitch that it should be their strategic partner in transitioning to hybrid cloud, Gelsinger said. The company’s Cloud Foundation platform, which provides a common infrastructure that can be deployed on-premises or run as a service from the cloud, “will exceed all goals,” he said. The company’s recent move into security is also faring well, Gelsinger said without providing specifics. “We’re in a unique position in security where we see the entirety of the operation — the data flow, the network and the applications,” he said. And the two-and-a-half year old partnership with Amazon Web Services Inc. is “going extremely well.”

Forrester’s O’Donnell said VMware is in a sweet spot as customers moved to a multicloud strategy. “Customers want a choice of cloud and some assets remaining in their own data centers,” he said, “and now the emerging edge computing market is expanding rapidly. VMware is in a prime position to span all of these domains.”

Having declared victory in its partnership with Amazon, VMware may be close to striking a deal with longtime rival Microsoft Corp. on a similar partnership, according to recent reports. Pund-IT’s King said that indicates the company is growing increasingly confident in the trust its customers are investing in it to manage their hybrid cloud futures. “Working with AWS and Microsoft is VMware going where its customers lead,” he said.

Photo: VMware/livestream