VMware sheds 900 jobs as it diversifies away from server virtualisation

VMware has bucked recent hiring trends in the tech sector by announcing 900 job losses, despite unveiling a three per cent rise in 2012 income to $746m (£475m), while revenue rose 22 per cent to $4.61bn (£2.94bn).

The announcement comes at a pivotal time for VMware. Not only have there been changes at the top with the departure of chief technology officer Steve Herrod a fortnight ago, and the arrival in July 2012 of new CEO Pat Gelsinger - who joined from parent company EMC - but there seems to be a growing recognition that the ground is shifting beneath the company's feet.

VMware remains the market leader in server virtualisation, but its once absolute dominance is in decline. In 2011 a Computing survey put its market share at 80 per cent, whereas this year it is pegged at 65 per cent, according to Gartner.

Its nearest rival, Microsoft Hyper-V, is now bundled with SQL Server 2012 and is likely to see its current 27 per cent share jump as a result. Meanwhile, Citrix Xen and KVM, which is included in Linux distributions, are also taking a bigger cut of the pie.

VMware's case on the server was not helped when, last year, it changed its licensing policy for vSphere to effectively tie pricing to RAM, which would have penalised those consolidating onto a few servers. This charging policy was deeply unpopular and quickly dropped following Gelsinger's arrival.

In 2011, VMware acquired cloud-based presentation firm SlideRocket. It is thought that many of the 900 job losses will occur in this and other non-core areas as the company seeks to refocus its efforts towards key areas of growth.

So, what will this focus be?

With server virtualisation becoming commodified, and sales to one of its core markets - the US public sector - down as cuts bite, VMware is looking to the cloud.

Currently dominated by Amazon AWS, Microsoft Azure and Google Cloud Platform, parent company EMC wants to use VMware as a way of increasing its share of this growing market. In an attempt to gain a decent foothold, in December Paul Maritz, EMC chief strategy officer, announced the Pivotal Initiative, an internal "joint venture" between EMC's Greenplum and Pivotal Labs and VMware's vFabric, Cloud Foundry and Cetas organisations.

The Pivotal Initiative can be seen as a move away from server virtualisation towards a focus on the software-defined datacentre and end-user computing, where the firm sees future growth occurring. Included in this vision is bring your own device (BYOD) where the company will go head-to-head with rival Citrix. VMware is seeking to boost its Horizon Suite mobile device management (MDM) software through a unified cloud architecture.

The firm's purchase of Nicira in July 2012 also heralded a move towards virtualised networking, and VMware has vowed to continue its programme of acquisitions to achieve its goals.

Elsewhere, VMware has moved to embrace the open source model, pushing its cloud-agnostic PaaS service Cloud Foundry, which is being released under the Apache Licence. VMware and EMC have also joined the OpenStack initiative started by Rackspace and NASA, seeking to be a key player in the growing open cloud movement.

Despite yesterday's announcement of job losses, VMware insisted that it still expected to hire 1,100 staff this year. The company currently employs about 13,800 workers, and has added about 6,700 staff over the past three years.