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Google Plots Course to Overtake Cloud Rivals

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02/22/2020 | 10:14am EST

By Aaron Tilley

Google's decision to cut jobs at its cloud-computing division is the latest move in a yearlong effort by Thomas Kurian to shake up the unit and put greater focus on delivering growth to parent Alphabet Inc.

Mr. Kurian, after joining from Oracle Corp. in November 2018, imposed hard project deadlines, riling some workers used to looser execution targets, according to former Google employees, some of whom left because of the move. The job cuts that Google disclosed last week to The Wall Street Journal were part of a restructuring aimed at improving how the company works with cloud customers, it said.

Among the objectives Google has set since Mr. Kurian joined are to become one of the top two cloud-computing providers and exceed $25 billion in sales within a few years, according to former employees. Google has room to grow -- its market share in the cloud is just 4%, according to Gartner Inc. It trails Amazon.com Inc., Microsoft Corp. and China's Alibaba Group Holding Ltd.

Google wouldn't comment on specific internal targets, and Mr. Kurian said league tables aren't his priority. "I don't wake up counting if we're first, second or third biggest," he said. "If we deliver the right product innovation, we'll grow with [customers] and see results."

To spur growth, Mr. Kurian has focused on six industries, including financial services and health care, to chase customers. He is also building out regional sales teams.

Mr. Kurian is also exploring ways for Google Cloud to pursue business in China, according to former employees. The size of China's market makes it an attractive target for cloud providers, but political tensions with the U.S. present obstacles.

China is a market where Google has a difficult history. In 2010, Google pulled its search engine out of the country over the censoring of search results. When plans to resume work in China surfaced in 2018, they drew internal backlash, causing the company to abandon the effort.

"Until we see further progress in ongoing discussions between the U.S. government and Chinese government, we're waiting," Mr. Kurian said. "We haven't made that decision yet."

Cloud computing has become one of the hottest markets for tech companies as corporations shift more of their IT budgets to renting data storage and number-crunching capacity rather than buying their own hardware. Gartner estimates companies will spend more than $260 billion on cloud services this year, up more than a third from 2018.

Within Google, the cloud business has been growing in importance. The cloud generated 5.5% of Alphabet sales last year, or $8.9 billion, up from $4.1 billion, or 3.7% of total sales, two years earlier. Alphabet only began separately reporting cloud sales in the last quarter, further highlighting the growth push.

Mr. Kurian's changes have led to tensions within Google's cloud ranks, where engineers had largely worked unencumbered by deadlines, according to current and former employees. Engineers were often more focused on projects they deemed interesting, former employers said, rather than what customers were wanting. That meant such features as databases and identity management -- which didn't excite employees but were prized by corporate buyers -- were neglected, former employers said.

Under Mr. Kurian, said a former Google Cloud engineer, "we have to build stuff we can sell. People weren't used to having that."

Mr. Kurian also upset some sales people when he shifted their compensation plans by lowering their base pay but offering more in bonuses for the deals they secured, former employees said. Google declined to comment.

Over the past year, the changes at Google Cloud have been noticeable to partners and customers, said Christian Rast, global head of technology at KPMG International, which teamed up with Google Cloud in mid-2018 before Mr. Kurian joined. Mr. Rast said Google Cloud has a better understanding of how to work with big legacy enterprises than it did in the past.

Google has a history of offering consumer products in the cloud, providing services such as email, documents and spreadsheets as well as selling storage and computing services to outside customers. But it began to pursue enterprise contracts with big business more formally in 2015. At the time, Google's cloud business was led by Diane Greene, a veteran of the enterprise-software world and co-founder of software provider VMware Inc., now majority-owned by Dell Technologies Inc.

Early progress was slowed when Ms. Greene was unable to get backing for some acquisitions to help expand in the cloud, people close to Ms. Greene said. Ms. Greene couldn't enlist Chief Executive Officer Sundar Pichai to meet with GitHub executives to close a deal. Google lost out to Microsoft, which agreed in 2018 to buy the coding-collaboration site for $7.5 billion in stock, with Microsoft CEO Satya Nadella's support.

Ms. Greene left Google in January 2019, replaced by Mr. Kurian. Since joining from Oracle, where he spent two decades in areas including product development, Mr. Kurian has said his priority is making the cloud business more responsive to corporate customers, which are the biggest cloud spenders.

Under Mr. Kurian, Google bought the data-analytics firm Looker for $2.6 billion. This past week the company announced it was buying, for an undisclosed amount, Cornerstone Technology, an IT-services company that helps companies shift their work to the cloud.

Late last year Google set up a "customer success" team to help customers achieve their objectives on the company's cloud service, said John Jester, Google Cloud vice president for customer experience, who leads the effort. "We weren't focused on the enterprise at the level we needed to be," said Mr. Jester, who joined from Microsoft.

Google has picked up some marquee customers. Riot Games Inc., maker of the popular online videogame League of Legends and owned by the Chinese tech giant Tencent Holdings Ltd., is moving its data analytics from Amazon to Google Cloud because of the sophisticated tools Google Cloud offered, people familiar with the move said.

Google's cloud effort under Mr. Kurian has also encountered challenges. Google teamed up with the second-largest health system in the U.S. to collect detailed information on 50 million American patients, sparking a federal inquiry and criticism from patients and lawmakers.

Despite the layoffs in other parts of its business, Google Cloud continues to bolster its sales ranks. At the end of 2019, Google Cloud had 1,500 sales people, and by the end of this year, the group plans to double to 3,000 sales people, according to a person familiar with company's plans.

--Robert McMillan contributed to this article.

Write to Aaron Tilley at aaron.tilley@wsj.com


Stocks mentioned in the article
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ALIBABA GROUP HOLDING -2.50% 212.59 Delayed Quote.0.23%
ALPHABET INC. -2.21% 1483.46 Delayed Quote.10.76%
DELL TECHNOLOGIES INC. -2.32% 51.72 Delayed Quote.0.64%
GARTNER INC 0.33% 155.46 Delayed Quote.0.88%
GRAND PARADE INVESTMENTS LIMITED 2.78% 3.7 End-of-day quote.3.35%
MICROSOFT CORPORATION -3.16% 178.59 Delayed Quote.13.25%
ORACLE CORPORATION -1.50% 54.68 Delayed Quote.3.21%
TENCENT HOLDINGS LIMITED -0.34% 410 End-of-day quote.-1.44%
VMWARE, INC. -1.44% 159.87 Delayed Quote.5.32%
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Financials (USD)
Sales 2020 10 119 M
EBIT 2020 3 341 M
Net income 2020 6 750 M
Debt 2020 3 135 M
Yield 2020 -
P/E ratio 2020 9,88x
P/E ratio 2021 34,0x
EV / Sales2020 6,79x
EV / Sales2021 5,53x
Capitalization 65 532 M
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Income Statement Evolution
Mean consensus OUTPERFORM
Number of Analysts 33
Average target price 182,55  $
Last Close Price 159,87  $
Spread / Highest target 35,1%
Spread / Average Target 14,2%
Spread / Lowest Target -28,1%
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Patrick P. Gelsinger Chief Executive Officer & Director
Michael Saul Dell Chairman
Zane C. Rowe Chief Financial Officer & Executive Vice President
Baskaran G. Iyer Chief Information Officer & Senior Vice President
Greg Lavender Chief Technology Officer & Senior Vice President
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VMWARE, INC.5.32%65 532
ACCENTURE0.63%134 549