Reaction to Intel & VMware 2016 Q1 fiscal results

Since I left, PwC, I don’t get to talk to as many customers. I still have a thrust for understanding and talking about what’s happening in the industry. So, I speak at as many conferences as possible to get a sampling and I listen to the investor conference calls of major enterprise companies such as VMware and Intel.

My initial reaction to Intel’s 2016 Q1 results is that Intel is making the difficult decision to pivot the business. Intel’s processor business is heavily tied to the PC business. Intel’s attempts to break ARM’s stranglehold on the mobile device market have failed in large. Over the past few quarters Intel has shifted focus to Cloud, IoT and Data Center. Intel has come to the realization that business has shifted and the 12,000 layoffs is a painful reality of that shift.

VMware gave a much more rosy picture of their transition. Besides beating street expectations, VMware announced a $1.2B stock buyback. VMware’s stock price has taken a beating since the announced Dell purchase of EMC. I’m no finance expert, but logic tells me that the $1.2B buyback makes VMware cheaper in the long run for Dell. It’s a bet that VMware will grow in value and is a relatively cheap investment for Dell. I expect more buybacks as Dell figures out debt reduction in the future.

One of the interesting numbers in the VMware’s 10K is the professional services numbers. After having growth rangine from 16% to 30% the previous 4 quarters, VMware’s professional services only grew 2.7%. I was hoping one of the analysts would ask Pat Gelsinger about the lackluster performance.

While PS isn’t a huge part of VMware’s bottomline, I use it as an indicator for adoption of VMware’s other products. Both NSX ad vRealize are hard to implement. This means as more enterprise license agreements (ELA) are sold, consulting opportunities rise for the PS group. The lack of growth in PS indicates that either the group is underperforming or there’s a lack of demand to implement products sold via the ELA. Or there was a change in how PS is reported. Either way, I would have liked an answer.

So, what does this all mean? Do I still believe there’s opportunity for VMware to change the industry? I go into further detail in my latest coffee chat.