VMware cuts 800 jobs as it transitions from older 'blockbuster' compute products

The company is facing pressure in its core server virtualization business

VMware is cutting about 800 jobs as it transitions from its traditional products to newer, emerging technologies.

The company expects 2016 will be a key transition year as "we expect the effect of our new products to outweigh the decline in our compute products," CEO Pat Gelsinger said in an earnings conference call Tuesday.

The company has been facing challenges in its software business as its customers are increasingly using public cloud providers like Amazon Web Services and Microsoft Azure.

"Public cloud providers do provide VMware, but for many of the newer, cloud workloads, many are opting for containers or even OpenStack which doesn't require what's considered expensive VMware licenses," wrote Patrick Moorhead, president and principal analyst at Moor Insights & Strategy, in an email.

VMware reported that its total revenue under generally accepted accounting principles (GAAP) for 2015 was US$6.57 billion, an increase of 9 percent from 2014, or up 12 percent year-over-year on a constant currency basis. The company forecast that 2016 revenue will be up to $6.935 billion, an annual rise of up to 4 percent from 2015.

The guidance was influenced by concern about business from weakening economies like Russia, Brazil and China.

Gelsinger said during the conference call that the company recognizes that its blockbuster compute products are reaching maturity, and will play a decreasing role in the business. But the company expects newer emerging products will pick up the slack.

One of the company's new focus areas is on extending customers' private cloud workloads into the public cloud via vCloud Air Network and vCloud Air. But Gelsinger clarified that its vCloud Air cloud computing service will have a narrower focus, providing specialized cloud software and services distinct from other public cloud providers, suggesting that the company does not want to take the big players head-on in the commodity cloud business.

"For VMware to get back on track, they need to accelerate their hybrid cloud offerings into the enterprise to stem the flow of customers into the public cloud," Moorhead said.

Some of the company's newer products are seeing strong growth. In 2015, NSX, a network virtualization and security platform for the software-defined data center, grew over 100 percent year-over-year, bringing the total annual bookings run-rate to over $600 million, while in the fourth quarter of 2015, its Virtual SAN business grew nearly 200 percent year-over-year, with a total annual bookings run-rate of over $100 million.

In a separate announcement Tuesday, VMware said that Jonathan Chadwick, the company's chief financial officer, chief operating officer and executive vice president, has decided to leave VMware and will be replaced on March 1 by Zane Rowe who takes over as CFO after a stint at EMC.

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