Don’t expect big changes from VMware’s new CEO

By Tim Stammers, Senior Analyst, Infrastructure, Ovum.

Paul Maritz, CEO of EMC subsidiary VMware, is to be replaced by Pat Gelsinger, who is currently president and COO of all of EMC’s business other than VMware. The swap will happen in September, when Maritz will move in the opposite direction to become EMC chief strategist.

The move does not signal immediate or major changes at VMware. While the company faces increasing competition, its dominant position in the server virtualization market is not under immediate threat, and its revenue is still growing quickly.

EMC has also dismissed rumors that VMware plans to spin out its Cloud Foundry operation, at least for now. Although Maritz offered to step down during board discussions of VMware’s strategy, he has not been sidelined, as shown by his new role, his continued presence on VMware’s board of directors, and his high profile this week during the webcast announcement of the management changes.

Gelsinger’s posting will give him his first experience as a CEO, and EMC said that this is part of a plan to groom an eventual replacement for its current CEO, Joe Tucci. However, Gelsinger has not yet clinched the top job at EMC, and there is at least one other strong candidate for the post.

VMware is not set for any major changes of strategy

During the webcast announcing his new role, Gelsinger said he would continue VMware’s current strategy. The company’s strong dominance of the server virtualization market has caused it to grow extremely rapidly. Even though its revenue growth has slowed since 2010, the company is still growing very quickly, and the slowing is inevitable given the size the company has reached.

For 2012, VMware expects its revenue to grow by a very healthy 20% to reach $4.6bn. Much of the technical development at VMware will continue to focus on exploiting the flexibility of virtualized servers in private and public clouds, using automated management systems that also embrace storage and network infrastructure.

These management systems will also handle virtual servers based on other suppliers’ virtualization software, as indicated by VMware’s very recent purchase of cross-vendor management specialist DynamicOps. As Maritz said this week, VMware does not assume that it will be the only supplier of server virtualization software.

How fast VMware will move in this cross-vendor direction will depend on how quickly its competitors gain market share, because this will determine the payoff that VMware will enjoy in return for making it easier for its customers to adopt rival products.

Microsoft will soon step up its challenge

VMware’s biggest challenger is Microsoft, whose Hyper-V-based server virtualization software will undergo a major upgrade before the end of year when Windows Server 2012 ships. This will narrow the technical gap between VMware and Microsoft’s products, and will increase Microsoft’s minority market share by allowing Hyper-V to reach “good-enough” status for a wider range of customers.

VMware will certainly respond by lowering its prices. However, Microsoft’s challenge is far from overwhelming, and VMware’s market dominance will continue. Behind Microsoft, the other challengers are Citrix, Red Hat, and Oracle, which present lesser competition to VMware.

VMware’s doesn’t have to care about its image

Gelsinger may want to address criticisms that VMware has become too proprietary and too much like Microsoft in this respect. Before taking the top job at VMware, Maritz had been an executive at Microsoft, and he has brought in other ex-Microsoft chiefs to VMware.

However, when the biggest current competitor is Microsoft itself, the need to deal with this issue is limited. VMware is probably content to allow IBM and Red Hat to enjoy their currently small market shares, which result in part from the open source, politically correct nature of the KVM hypervisor they have both adopted for server virtualization. This is preferable to giving away VMware’s crown jewels and technical lead by making VMware’s software open source.

There will be no cloud Foundry spin-off, yet

VMware’s long-running effort to establish its software as a platform in the fast growing public cloud market has not been spectacularly successful. Public cloud operators prefer to use open source software, which is free and can be modified to suit their own needs. This is the underlying reason for the rumors that VMware will spin out its Cloud Foundry operation, because doing so would distance it from VMware’s proprietary reputation.

EMC only partly addressed those rumors this week. It did not dismiss the rumors out of hand, but said that any such moves would be premature for an incoming CEO, whose initial task is to size up the landscape.

Gelsinger is in the frame as EMC’s next CEO

Tucci took the post of CEO at EMC in 2001. His watch has been very successful, and has seen EMC expand dramatically in size and data center presence. Tucci first declared his intention to step down about three years ago, but he delayed the move. Last year he said he would step down in 2012. This week he said he will remain CEO until at least the end of 2013, and that he is happy to stay on for as long as the EMC board wants.

Although EMC has not named Tucci’s successor, it said that Gelsinger’s new role and one other management change it made this week were part of its succession plan. The other change was that David Goulden, EMC’s current CFO, is to become president and COO of EMC, effectively taking over Gelsinger’s role.

Tucci described this move and Maritz’ posting to VMware as giving executives new management experiences as part of the company’s succession plans. EMC has never hinted at the identity of the likely successors, but Gelsinger and Goulden were already assumed to be the front-runners even before the latest management changes.

Goulden has been at EMC for 10 years, and as well as being CFO he has run the company’s global sales and marketing operations. Gelsinger has a stronger engineering background, having come to EMC from Intel where he was CTO for five years, and before that led the development of Intel’s mainstay x86 architecture. This and EMC’s strong engineering reputation is likely to give Gelsinger the edge over Goulden. To secure the job, he has to manage VMware correctly, with guidance from Maritz who will not only be EMC’s chief strategist, but is also promised to be an “active” member of VMware’s board.

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