VMware, Inc. (VMW), Citrix Systems, Inc. (CTXS) & How To Gain Exposure To The Cloud

With the increasing demand for data security, efficiency, and the growing use of software-as-a-service, IT companies are constantly upgrading technologies in their services and products. Also, they are taking initiatives to cope with the rapidly changing demand emerging from breakthrough technologies like Big Data and Cloud Computing. I have discussed three such companies, which have dealt with these changes perfectly and were successful in defending their market shares.

VMware, Inc. (NYSE:VMW)

Recently, the company posted its first quarter net income of $174 million, leading to an increase of 13% in revenue from the past year and total sales of $1.19 billion. This upside was mainly due to the focus on hybrid-cloud and network-virtualization products. VMware, Inc. (NYSE:VMW) is making a shift from private clouds to hybrid clouds with its own cloud offering, the “vCloud hybrid service.” Currently, it is in beta stage and is expected to be fully launched by May 21, 2013. This service is likely to increase the company’s revenue by 15% in 2014.

Also, VMware, Inc. (NYSE:VMW) has an additional advantage of its present customer base, which is around 480,000. Quite interestingly, 100% of Fortune 100 clients use VMware, Inc. (NYSE:VMW) services, and if we talk about Fortune 1000 companies, 84% of them are VMware, Inc. (NYSE:VMW) customers. This enormous customer base will shift to its new hybrid cloud service from existing public cloud, which, consequently, opens incremental revenue opportunities. From a long term perspective, VMware, Inc. (NYSE:VMW) will achieve the total addressable market (TAM) of more than $50 billion in 2016, which, in 2012, was $19 billion, a CAGR of almost 15%–20%.

Another opportunity for VMware is enterprise license agreements (ELAs), which usually have an average tenure of  three years and average deal size of around $1 million. Agreements worth $717 million in 2010 are due for renewal this year. I believe these renewals will act as a tailwind for the company, as more than half of them will be signed in the second quarter of 2013, and will increase the company’s overall revenue by the end of 2013.

Citrix Systems, Inc. (NASDAQ:CTXS)

Networking and cloud computing will remain positive revenue drivers for Citrix Systems, Inc. (NASDAQ:CTXS) in the fiscal year 2013. It is estimated that 23% of the company’s total revenue will be from networking and cloud computing products and services, which is 42% up year-over-year. Moving forward, these services will further help Citrix Systems, Inc. (NASDAQ:CTXS) to push its total revenue by more than 14% in 2014.