VMware, Inc. (VMW) CEO Pat Gelsinger Presents at Wells Fargo Securities TMT Summit (Transcript)
VMware, Inc. (NYSE:VMW) Wells Fargo Securities TMT Summit December 1, 2020 2:40 PM ET
Company Participants
Pat Gelsinger - CEO
Raghu Raghuram - Chief Operating Officer, Product and Cloud Services
Paul Ziots - VP, IR
Conference Call Participants
Phil Winslow - Wells Fargo Securities
Phil Winslow
Hello and welcome everyone to the Fourth Annual Wells Fargo TMT Summit. Very excited for this lunch [technical difficulty] with VMware. As you know, we plan to have Raghu on to discuss things from a product perspective. But we also have a surprise guest speaker, CEO, Pat Gelsinger is able to join us. So Raghu, Pat, thank you for joining us today
Pat Gelsinger
Perfect. Thanks, Phil.
Phil Winslow
Great. Well before we get going, and I'm going to try to do this as well as Paul Ziots, but we will see if I can pull that off. Statements made in these discussions which are not statements of historical fact are forward-looking statements based upon current expectations, actual results could differ materially from those projected due to a number of factors including those referenced in VMware's most recent SEC filings on Forms 10-Q, 10-K and 8-K. So, Paul, did I do well?
Paul Ziots
Perfect. Thank you. Thank you, Phil.
Phil Winslow
All right. Well, let's get going. Pat, I start with you. Obviously, we are 10 months now into the COVID-19 pandemic and we believe CEOs are being forced to reevaluate their strategies whereby a no cloud -- a strategy officially a no-go going forward at least that's a one-liner we've been using. Can you talk about what this prominent shift towards digital and the cloud has meant for VMware and will meant for VMware and your customers?
Pat Gelsinger
Well, overall we've unquestionably seen the cloud acceleration. Now we -- we're unquestionably the company that believes that, hey, it's going to be a multi-cloud and a hybrid cloud world going forward, but unquestionably an acceleration in cloud. Part of it is, hey, I can't do the POC because I can't get access to my data center, right? I can't scale because of other limitations of COVID. So there's definitely been that shift.
But as I've said in the past, Phil, the three laws of private cloud, laws of economics, it's cheaper, laws of physics, it's faster in many cases and laws of the land, regulatory. So inside of that we clearly are seeing that in our business with very solid growth and acceleration in our subscription and SaaS and a bit more pressure in on-premise.
Every IT shop is accelerating their digital agenda and despite budget challenges and other things, digital transformation floats to the top. We see that in their cloud projects, their AT projects, their security, and of course their work from anywhere projects and assignments overall. But yes, there's a lot of change going on inside of their budgets. Things going up, things going down, projects moved out, urgent execution. And overall it's a great time to be a technology company because we just think that we continue to be in a 10-year wonderful cycle where technology is growing faster than the GDP and software cloud is growing faster than technology overall.
Phil Winslow
Got it. Question, follow-up for you, Raghu. Can you talk about the dynamics in the overall enterprise cloud adoption trends that we've witnessed in 2020? What do you expect will change over the next couple of years and what you're seeing so far this year in terms of just customer buying patterns?
Raghu Raghuram
Sure. So as Pat alluded to, I think we are in a second digital transformation cycle for our customers and pandemic -- the pandemic accelerated some of these things and we don't see it stopping [indiscernible]. So we see that the cloud and modernization trends that accelerated this here to continue. Balancing that is, if you think about how customers think about their multi-cloud strategy, one of the things we always hear back is they see their applications -- excuse me, leaving on-premise in the cloud, in the Edge as well, right? So they see these applications leaving across all of these computer environments.
And as the pandemic recedes, we see them building up and transforming their on-premise data center or transforming their Edge in addition to modernizing their applications in the cloud, right? So we see both sides of this benefiting as time goes on and we overcome the pandemic. So that's the fundamental trend that we see over the next 2, 3 years is that multi-cloud phenomenon being really coming alive. And the multi-cloud phenomenon, not only being only about the data center and maybe one or two hyperscalers, but also including the Edge as well.
And we see all the early signs of it today. Most retailers want to become omni-channel. They are revamping what they're doing in the stores. Manufacturing companies and logistics companies rethinking their supply chain and putting more robotics into the shop floor, so on and so forth. So everywhere we see computing becoming more ubiquitous and the need for VMware solution becoming a universal infrastructure layer and a software defined infrastructure layer across all of these things is becoming more and more necessary. Number one.
Number two, Kubernete is becoming the modern infrastructure for modern applications that is also going to be pervasive across all of these areas, right? And then number three, developers are going to be increasingly under pressure to put code into production faster. And that's why many of the assets that we acquired from pivotal as we modernize those assets, they can work across Kubernetes, et cetera, those things are going to become more relevant. And then tying it all together is going to be security and manageability, right? So in short, we see every aspect of our portfolio benefiting from this digital trend, which is going to accelerate over the next couple of years.
Phil Winslow
Pat, just to follow-up on that, obviously, Raghu laid out some of the megatrends affecting the industry [indiscernible]. I'd actually argue that potentially maybe the most impactful word over the past 18, 24 months is the word multi. It's no longer a hybrid cloud, it's multi-cloud. And in my opinion, that means the need for a consistent infrastructure layer, consistent platform across those different instances. So question for you, obviously you've talked to a bunch of customers of large companies every day. And how do you think these customers, these projects view VMware today as we close 2020, sort of in this context relative to the strategic importance of VMware?
Pat Gelsinger
Well, I think we've made a lot of progress, Phil in the sense that if we were a couple of years ago, you were part of my IT past, right? And now when I'd say particularly with the strength of VMware cloud on Amazon, they're viewing, this idea of an accelerant to the cloud and my cloud migrations, oh, I get it, right? And now a lot of them had their failed student body right projects, right, because they said we're going to rebuild everything in the cloud. Oh my gosh, right? Those things, I can build new things in the cloud, but this idea of migrate, oh man, that's way too heavy and way too hard. So we're clearly getting recognition that, okay, this is the fastest way to the cloud. It's an economic way to the cloud. I get to have VMs entertainers [ph], oh, this is good.
Where we haven't yet won the hearts and minds of customers is that I build my new apps with VMware, right? And that's where our Tanzu play this emergence of containers, Kubernetes. And we have very good proof points, but I wouldn't say that's generally accepted in the industry yet. And I'd say, that's where we are and that's why Tanzu and that portfolio is so critical to us and the emergence of multi-cloud, right? Going back to your question, oh now having new cloud silos, just like I used to have new minicomputer silos, right? If you go back and all of a sudden, I really need to manage all of those and boy, I got a team doing this on Amazon and they're using how do I manage that layer?
And for instance, we just saw the first wave come out, our VMware was way ahead as the leader in multi-cloud management, right? Year-on-year, I mean, the gap has just exploded between us and the competitor. So they were starting to get that recognition of, oh, this is a really powerful way to develop my new apps as well as to manage my multi-cloud environments. But those would be some of the big dues for us over the next quarter or two to really get that sedimented into the industry perception. I believe it will be a nice accelerant to our business because now with all of the hyperscalers available, Google, Amazon, Azure, IBM, Alibaba, all the second tier players, they're all now selling VMware, right? It's a faster way to the cloud and we're starting to have proof point customers that really are saying, oh, I need multi-cloud, VMware is the best place to give me multi-cloud common management, common infrastructure, common containers. That's a unique position for us.
Raghu Raghuram
Yes. I mean, I think there are two parts of the value proposition just to add on to what Pat said. First is customer say, I want to move faster to the cloud. And as Pat talked about, there's no faster way than moving to the cloud and no cheaper way to moving to the cloud. I mean, IBC did a study recently. We are roughly 50% faster, 50% cheaper than any other mechanism. The second place where speed is very important to CIOs is, putting code into production faster. So today they struggle with the developer makes a change. It takes a month for them change to be on to their e-commerce site or whatever using Tanzu, we can literally do multiple pushes to production a day if they want to, right? So I think these are the two areas that we can uniquely deliver value, but what makes it even more enticing is we can do this regardless of any cloud or on -premise, right? So I can help you move to the cloud faster, any cloud I can help you put code into production faster on any cloud, right? And, but like, Pat, talked about once it's all there, we can help you manage it, secure it, regardless of any underlying infrastructure. So that I think is the unique uniqueness of what customers see in us today. And so that's where we make the jump from being part of the past to being essential to the future.
Phil Winslow
Got it. Let's focus in on this as [indiscernible] (1037). Let me see [indiscernible] (). At VM world last year, you unveiled projects specific, which was, I thought you’ve a game changer. And then in March, 2020, obviously formerly launched vSphere 7 with Kubernetes in concert with VMware Tanzu. The question I have is what do you think are the misconceptions about containers and Kubernetes in regards to VMware? And how do you think about sort of the positives and negatives of the emergence of Kubernetes sort of at the factory infrastructure layer?
Raghu Raghuram
So I'll start. So the first thing is the emergence of Kubernetes has been one of the strongest, one of the best things for VMware in the last, whatever 5 years or whatever, right? Because of two things. One is, like we're talking about the previous topic. It provides like a platform of independent infrastructure for all applications to run on, right? So you've got Kubernetes on top of vSphere, Kubernetes on top of AWS, Azure, name your environment, right? And so this is why we went and acquired the kind of people, the founders of Kubernetes and the company that they created. So it opens up a massive opportunity for us. For containers and we already are the standard when it comes to VMs. So what this allows us is to be the standard for both VMs and containers on any cloud. So that's why Kubernetes is great for us.
And that's what people don't understand as much. And the second is even if you’ve containers, the need for security, the need for networking, the need for management, the need for storage, all of those things only increase because with the container, what guess what you have container strong [ph], you all of a sudden had a modern application when it deliver its containers. Consists literally a thousand moving parts as opposed to a hundred moving parts of the case of VMs, right? So need to connect all of these things together. They need to secure all of these, need to manage all of these things become that much more critical. And guess what? Those are the things that where we shine already, right.
When customers [indiscernible] to VMware, it's not because we can run VMs, but because we can protect VMs, you can connect VMs, you can secure VMs, you can manage VMs. Now replaced VMs containers are actually say, you can do both VMs on containers in the same tool set that aren't across any cloud. That becomes very powerful, right? So those are things that people don't realize that it's actually an accelerant to our business as opposed to an inhibitor.
Pat Gelsinger
Yes. And maybe I'll just add one little point. There is sort of this, you, and I'll say it has shades of what OpenStack was 5, 6 years ago. Hey, I'll just run my containers on [indiscernible]. What a bad idea, right? You're forking your infrastructure, right, you have to -- as Raghu just said, all of these networking problems, security problems, hardware management problems, oh, I got to rebuild an environment to do. What a stupid idea, right? But yet it sounds so conducive. Oh, let's just, it's easy to go do that. It isn't easy and the issues get much more complicated as you now go to micro service architectures where you have a lot more things going on at the application level and you need to bind those to the underlying infrastructure. And I think, as customers go play with that and explore it, we're winning those at the end of the day. But clearly it's somewhat a seductive path that is pretty easy to describe and absolutely impossible to implement.
Phil Winslow
So yes, I've been describing VMware as the -- and the company. VMs and [indiscernible] it's on-premise and the cloud. It's not just add cloud, it's Azure and Oracle and Alibaba and so, feel free to take a marketing.
Pat Gelsinger
Yes. We have a job for you Phil. We are good.
Phil Winslow
But there is a question here in that statement. If you think of sort of VMware, do you agree with me, that VMware is [indiscernible] company, how should we think about just the broader competitive landscape? What does that look like? And when you think about VMware's positioning versus competitors, what differentiates, what VMware has?
Pat Gelsinger
Well, I'd say nobody has the end that we have, right? Who else can describe that they have a VMware cloud offering with common infrastructure on Google, Amazon Azure, Alibaba, Tencent, hundreds of second tier cloud providers and 80% plus market share of private cloud. And right now manage from cloud on-premise with VMware cloud on Dell EMC. Nobody can say that, except VMware, right?
And yet customers are saying, I want a multi-cloud environment, I'm using Amazon, but I want to start taking advantage of Azure. I'm not -- we are never going to use Amazon, right? I need Azure and I need a second cloud and Google. I got huge footprint on-premise that end is such a big statement and the ability to say and to containers and VMs, right? Oh, hey, let's move to containerized environments. So let's just start by rebuilding every application.
I mean, it's like, wow. Some of these apps, decade, two decades, three decades and I got thousands of them, if I'm a big company like Wells Fargo, right? You're not talking about tens of apps, you're talking about thousands of apps that need to be refactored and rebuilt to this environment. That end is so powerful. And you know, one of my favorite IT jokes, Phil is why could God create the earth in 7 days?
Phil Winslow
What’s that?
Pat Gelsinger
He had no legacy. And can you …
Phil Winslow
[Indiscernible] steal that.
Pat Gelsinger
Please do. Please do. I'll steal your and you can steal mine.
Phil Winslow
[Indiscernible].
Pat Gelsinger
But the fact of this enormity, right, that we solve that problem with such an elegant solution, such an elegant end have all of these apps and the future in a consistent environment, right, that's private and public cloud, my past and my future. That's huge. And that's the position that gives us such a unique aspect to become this critical partner to the digital transformation of our customers.
Raghu Raghuram
So just to add to that, I mean, I think most customers portfolios even going forward, they are not -- they're going to have the traditional scale-up applications still, right? And they're going to build these new scale on, right? So the fact that VMs provide a fantastic environment for traditional obligations and Kubernetes and containers bring it into vSphere or otherwise provides a fantastic environment for modern applications. I think that is the other act, right, the existing applications and the new application.
And the last point I would say in terms of the differentiation is we are where customers are today, right? Customers have spent couple of decades investing in VMware expertise in order to be able to manage their application estate and infrastructure estate and so on and so forth. We are able to carry that all through as they get to the modern world, right? So I have this ability to take that existing knowledge and so on and so forth and apply them on the tool set and the practices and have it worked seamlessly, the new world is something very unique, right? Because even in the new world, the need for management and security doesn't go away. And so those are areas that are traditionally been historically reasons why customers bet on VMware.
Phil Winslow
I mean, the thing I've been saying too is every project specific, I thought in my mind was sort of a game changer. And then Tanzu in a sense that, it rugged to your point the worry has always been, hey, it's going to Kubernetes, it's going to [indiscernible] intermediate VMware. But then when I saw project Pacific and then sort of VMware [indiscernible],I thought, okay, no, actually we go from being worried about being [indiscernible] intermediate to actually having a incumbency advantage which is the difference. That was a huge flipping on the script for me. And to follow-up on that, I guess a question for you, Raghu and then hopefully Pat, you can chime in too. The other aspects that you mentioned too was pivotal. And I think that's -- this is actually probably one of the most misunderstood acquisitions, in my opinion in recent years. I mean, I get often asked, hey, isn't this about Kubernetes? I was like, well, no, I have [indiscernible] about Kubernetes. And okay, yes, pivotal brought in some more Kubernetes, talent, but no, this was about developers. And what do you all talk about applications down, infrastructure also. Raghu, maybe starting with you. How do you think about bringing developers and IT office folks together sort of in the context of what you have with pivotal, but then [indiscernible]
Raghu Raghuram
Yes. Yes. You hit the nail on the head. I mean, the number one problem for CIOs is not availability of infrastructure or cloud or any of those things. It is, how do I build, go faster in my digital transformation and the keys to the kingdom is making the developers more productive, right. And making it simpler for the developers to build these modern micro services applications. And that is where pivotal shines. And so the -- if you think about our modern applications portfolio of products, there are two things that we bring to the market. One is the developer centric value proposition. And the other is a Kubernetes centric value proposition. And the reason we have got both of those in the same business on the same product portfolio is exactly the reason that you brought up, which is Kubernetes, is where developers build infrastructure, right? And so by having a consistent Kubernetes layer and the associated management being built from the point of view of the developer down to the infrastructure, or then taking the Kubernetes layer and merging it with our infrastructure products, we achieve this combination that you're asking about, which is how do you bring developers and infrastructure together? So the common language for both is the Kubernetes layer in between.
Pat Gelsinger
Yes. And I would just add that -- if you just look at it from a market perspective, the fact that we overachieved in Q2, our business plan, we overachieved by a bigger margin, our business plan in Q3, we feel like some of these, hey, it's pivotal thing, what are you guys doing? Hey, we're starting to crank, right. It's starting to make sense as we've now delivered project Pacific. We now start turning on the mass of the infrastructure sellers to be able to say, we got Kubernetes, we got containers. It is now easy and right, we're starting to see the traction of the developer centric motion. That was really the center of pivotal, right? And now that you bring that together with you know, Tanzu, we're starting to see the business results come in. We feel very confident about the strategy. We're going to pave the world with Kubernetes, with vSphere Pacific, right. And we're going to deliver the developer experience and really bring together those two worlds as was never possible before, right. And that's what's really exciting about this next phase of the VMware journey.
Raghu Raghuram
Yes. So one more point to add on that. I think, I've talked about the transformation on the infrastructure, right? But there is another transformation that's happening, which is the transformation of the pivotal stack, right -- or the pivotal value proposition to run on top of Kubernetes. And we are in some of the latter stages of building that out. Next year you'll see that in the market, right? And when that happens, you'll see the infrastructure and the application pieces coming together even more nicely.
Phil Winslow
Yes. Actually, that was perfect. That was actually going to be -- my lead to the next question, because it wasn't simply taking. Pivotal applications that we are making, Tanzu applications services, , it's Taz on Kubernetes. But then also when I think about the portfolio there, it's the function service. Tons of function service, tons we build service. I would describe it as sort of like the cocktail for developers. Wonder if you can kind of just double click on, not just simply, Taz and Kubernetes, but sort of this broad cocktail or I guess ingredients, it's like they put it bringing together for the developer.
Raghu Raghuram
Yes. Yes. I mean, that's a great point. So one of the key things that like I talked about earlier, the value proposition that we are trying to deliver to the market is help our developer to securely put code into production faster, right? So in order to do that many pieces, many of the pieces that you talked about, like the tons or build service have to come together. So the first is of course being able to take a piece of code and turn it into a working container, right? And then put it in a secure container registry. So [indiscernible] build service helps us do that.
And then our harbor open source project, which is the most popular dart container registry. One, [indiscernible] provides the secure repository for them, right? And then from there taking that code and pushing it into production, right, it turns out a technology called CF push. And we're bringing that into Kubernetes. That enables the developers to push the code into production much, much faster. Most modern developers when they look at their -- build their modern applications, heavily rely upon open source packages, right? So last year we acquired a company called Bitnami and that we have used that to deliver something called Tanzu application catalog, which is a curated catalog, a marketplace -- internal marketplace, if you will, of all of the open source components that the developer might need in order to build an application faster and then push it into production. And then once the application is running, they want to be able to manage that application and monitor the application, we call it observability, right? And we have a technology that we acquired 2 years ago called Wavefront, that provides for this observability component. So in other words, we provide soup to nuts, all the things that your developer, and then applicator [indiscernible] needs either to be able to push code to production and then manage that code over its life cycle.
And then last but not least with carbon black, we entered the domain of container security, right. And that is something that you will see in the marketplace next year, as long with customers through an acquisition that we did. And what that allows us to do is to deliver all of the goodness of carbon black, but to protect the container workload instead of projecting an end-user or a VM workload. Right? And so that will also be part of the [indiscernible] alongside the Tanzu portfolio. So we can not only help customers build code and push it into production, but we can also manage it and secure it as well. So that will be all the full terms of portfolio, which is very, very good to be very comprehensive.
Phil Winslow
Got it. Fantastic. Pat, switching gears a bit, obviously -- [indiscernible] let this keynote and without talking about software defined networking, software that find storage. So obviously you've talked about [indiscernible] data centers. Is that on-premise. We're being VMware warranted. Obviously, we see great growth and adoption of [indiscernible]. You've commented on, obviously these are transformative type, a type projects. And so maybe they could pause on this year. But two questions I want to ask you that, that I often get is what is the opportunity to deliver that [indiscernible] data center stack, into your existing install base. But also similarly, when you think about what you're doing with Kubernetes, is there similarly an opportunity to deliver a full stack there, but we're finally in Kubernetes perspective, networking and storage.
Pat Gelsinger
Yes. And simple answer is yes. And that, one of the things when I announced the acquisition of Nicira, right, 7.5 years ago, sort of like and we're going to take all networking functions into software, right? Cisco stock goes down as well. The reality is it took us a long time to get them all done, but they're now all done, right? You have IDS, IPS routing, switching, load balancing and [indiscernible] a hot product in our portfolio, right. And that is really starting to take off and next with the last line acquisition, we're now delivering on the full firewall capability as well, right? And that'll be an extended piece of our security portfolio. The other pieces Tanzu, service mesh, right? Extending network to deal with the complex security and policy aspects of inter-container networking, having already built on an extended the underlay and this case, a software overlay is now the underlay of the container networking environment, right, in a seamless and elegant way as well. So that portfolio is one where boy, we're just going to keep eating into the load balancer market, the firewall market, extending that upward into the container market, continuing to displace the value proposition of hardware tethered environments, because in a multi-cloud containerized world, everything needs to be done in a software way that can be extended from core to cloud to edge. And that's the path that we're on. We see the storage abstractions being likewise. When both those that we do, as well as the partner announcements, like we just announced several of those at VM road, you're going to see us integrate more deeply with Amazon's offerings in those areas and the Azure offering. So that we'll be providing consistency storage models, right, even when the backend is being delivered by Amazon or Azure as well. So all of these are just going to give us this platform, right? They keeps getting richer and richer, right from the infrastructure into the developer layer and building more of those ecosystem partnerships.
Phil Winslow
So, I guess, you’ve another [indiscernible] in other words, not just compute and storage and networking, it doesn't matter if the computer is a VM or Kubernetes container. So last question, because wow, the 30 minutes went faster. The question is both of y'all. Let's say, we're sitting up on stage in 5 years, hopefully back in person in Las Vegas at our conference, you're buying for the next 5 years and stuff with the -- what technology trends or techno or products do you, can you imagine looking back on and saying, wow, this was adopted faster than I expected. It was more transformative I expected in 2020. So maybe Pat start with you.
Pat Gelsinger
Yes. The two that I'm really excited about now that and they've talked about a lot, but I think we're now at the inflection point of adoption or 5G, right? Which really enables an Edge computing model at scale and AI machine learning, right? And what we've announced with NVIDIA and what we're doing to bring that workload into the core to really make enterprise AI possible. And those would be the two that I'm most excited about. 5G Edge and what we're going to do for AIML, that they really go from this hype cycle of yes, right, going through the Valley of death and now into the plains of prosperity with both of those. And I think VMware has great opportunities around both of them.
Raghu Raghuram
Yes, and I would say, I mean, some -- many of the medias that we have entered into now, especially recently are still in the early stages today. And 5 years from now, they will be in full bloom or over the next 5 years, that will be in full bloom. We call multi-cloud fairly early before any of our other industry peers or partners said, and you're starting to see it. But by no means, is it like completely mainstream? I would say, over the course of the next 3 years to 5 years, you will see becoming very mainstream. And then this thing that about a sort of be really driving both us and the industry [indiscernible] around is the idea of interest intrinsic security. We, again, just getting started there, right? So those two, I would add to what Pat had said.
Phil Winslow
Well, fantastic guys. That 30 minutes went really fast and could have gone for another 30 minutes, but really appreciate your time. Pat, thank you for the very pleasant surprise, joining me in Raghu, thank you. Insightful as always and a special [indiscernible] always to Paul Ziots, the man behind the scenes, you have put us all together. So thank you all for joining us and look forward to seeing you again soon.
Pat Gelsinger
Thank you, Phil.
Raghu Raghuram
Phil, stay safe.
Phil Winslow
Right. You too. Talk to you soon.
Question-and-Answer Session
Q -
[No formal Q&A for this event]
