VMware, Inc.
Q2 2010 Earnings Call Transcript

Published: 21 Jul 2010

[Operator:]

Welcome to the VMware Q2 2010 earnings call, and thank you for standing by. At this time all participants are in a listen only mode. (Operator Instructions.) Today’s conference is being recorded. If you have any objections you may disconnect at this time. I will turn the meeting over to Mr. Mike Haase, Vice President of Investor Relations. Sir, you may begin.

[Mike Haase:]

Thank you, and welcome to VMware’s Q2 2010 earnings conference call. On the call we have Paul Maritz, our CEO; Todd Nielsen, COO; and Mark Peek, CFO. Following their prepared remarks we will take your questions. A press release was issued after close of market and is posted on our website, where this call is being simultaneously webcast. Statements made on this call include forward looking statements, such as those with the words “will”, “believes”, “expects”, “continues”, and similar phrases that denote future expectations or intent regarding our financial outlook, product offerings, customer demand, and other matters. These statements are based on the environment as we currently see it and are subject to risks and uncertainties. Please refer to the press release and the risk factors in documents filed with the Securities and Exchange Commission, including our most recent reports on Form 10Q and Form 10K for information on risks and uncertainties that may cause actual results to differ materially from those set forth in such statements. In addition, during today’s call we will discuss certain non-GAAP financial measures. These non-GAAP financial measures, which are used as measures of VMware’s performance, should be considered in addition to, not as a substitute for or an isolation from GAAP measures. Our GAAP measures exclude the effect on our GAAP results for stock-based compensation, amortization of intangible assets, employer payroll tax and employee stock transactions, the net effect of amortization and capitalization of software, and acquisition related items. You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP measures, in the press release and on the investor relations page of our website. Our Q2 quiet period begins at the close of business September 16, 2010. Also, unless otherwise stated, all financial comparisons in this call will be in reference to our results of the comparable period of 2009. For your planning purposes, VMworld 2010, the industry’s leading virtualization conference, takes place at San Francisco’s Moscone Center August 30th through September 2nd. As part of this we will be hosting our first Analyst Day on August 31st at the same location. We plan on sending more details around registration, agenda, and logistics next week. With that, let me hand it over to Mark.

[Mark Peek:]

Thanks, Mike, and good afternoon, everyone. VMware had a great Q2 with record revenue, operating profit, and trailing 12-month free cash flow. Our business was strong across all geographies, transaction types and products. During the quarter we continued to see strong demand in the SMB-focused vSphere packages, which were a factor in achieving a record number of transactions in the quarter. With this increase in transaction volume, driven by small- and medium-sized business, the blended ASP per vSphere unit declined sequentially by $100. However, we displayed strong discipline around discounting as ASPs in our enterprise products increased modestly. Customers continued to adopt the vSphere platform as a strategic investment that delivers substantial cost savings, improved efficiency, and flexibility for their business. Our message is clear and is resonating with our customers, as they begin the journey to the private cloud

[Todd Nielsen:]

Thanks, Mark. Good afternoon. It appears the technological industry continues to be broadly benefiting from pent-up customer demand, and VMware is no exception. But as we look at our Q2 performance, VMware also benefited from strong field execution around the world and solid product line performance across all customer segments. As we hit the midpoint of 2010, I’m very pleased with the progress we have made operationally, within R&D, and across our go-to-market efforts. We’re working to establish a solid foundation that will enable VMware to support significant growth moving forward. A few highlights from the first half of the year that I’d like to call out include our customer count continues to grow at VMware, now serving more than 190,000 customers worldwide, up from 170,000 six months ago. We are making progress with industry analysts. Gartner recently positioned VMware as the sole leader in their virtualization magic quadrant, and signaled the tight linkage between virtualization and cloud computing. vSphere Essentials units are growing at 100% sequentially, indicating solid traction in the SMB market. Our SpringSource division is doing well, posting their best quarter ever and signaling that we are effectively growing near-term revenue while advancing our strategy to position Spring as the programming model of the cloud. As you’ll recall, we announced two important partnerships with Google and SalesForce.com that pivot on the technology and community associated with our SpringSource efforts. And lastly services attach rates - either our own or our ecosystem’s - are increasing, signaling our shift to a more consultative, enterprise-oriented engagement model. These are just a handful of examples illustrating VMware is growing stronger and leading the industry into the next era of computing. As our portfolio grows both organically and through acquisitions, our field is engaging with customers across a wide spectrum of opportunities. One example

[Paul Maritz:]

Thanks, Todd. Todd and Mark have given you a good overview of our Q2 performance. On a broader level we continue to execute on our three-layered strategy of firstly infrastructure, secondly applications, and thirdly end-user or desktop computing. Our investment in the first layer, infrastructure, is designed to allow customers to modernize their infrastructure, run it and manage it more efficiently, and build true secure private clouds for their existing applications and bridge those clouds to the external cloud; and generally operate in a more business-like way, behaving as internal service providers. In this context we’re particularly pleased with the release of vSphere 4.1. It’s a great product. It’s tangible evidence of the commitment of our vSphere team to deliver a series of high-quality releases as we seek to flush out the secure private/public or hybrid cloud. vSphere is now amongst the most sophisticated pieces of software in the world, and being able to deliver it with quality and in a predictable way is no small achievement. It’s this kind of execution that will allow us to stay ahead. We will now move to release a series of products that will fill out the additional aspects of the secure cloud – specifically security and management services – and we expect to have a full roster of announcements from both ourselves and our partners at VMworld at the end of August. At the second or application level we seek to allow customers to write, run, and manage new applications more efficiently and take full advantage of modern cloud infrastructure, infrastructure not only from VMware but from other providers as well. We’ve continued to fill out the space there, too. The acquisition of Gemstone takes us into the sophisticated distributed data caching services business. And a nod toward the announcements that Todd mentioned with SalesForce.com and Google – these partnerships are important as they underscore the role new programming frameworks and the Spring framework in particular will play in providing an open layer of new applications in the private and public cloud. At the third layer, the end-user or desktop level, we seek as Todd noted to build upon the current level of desktop virtualization and speak to the need of enterprises to focus more on managing users and spend less time managing devices, particularly in a world where endpoint devices are becoming increasingly heterogeneous. We'll be providing a path to our customers whereby they can move forward in an evolutionary way from their current Windows-centric environments, and in this context we’re looking forward to the release of 4.5. As Mark said, we’ll continue to make the investments needed at each of these three layers, mainly through organic development but also through focused technology acquisitions. By doing this we believe we can provide the bridge for our customers from today’s world of IT to tomorrow’s world of IT as a service. Finally, we look forward to spending time with you and providing additional background at the analyst event that we are planning for VMworld in San Francisco at the end of August. With that I guess we’ll open up for questions.

[Mike Haase:]

Okay Operator, let’s start the polling process please.

[Operator:]

Thank you. We will now begin the question-and-answer session. (Operator instructions.) The first question comes from Mr. Kash Rangan of Merrill Lynch. Your line is open.

[Kash Rangan:]

Hi, thank you very much. Nice quarter. As you give consideration for the first half of the year, clearly the results are very impressive. There’s been a big rebound in several markets. And how does your business look as you start planning for 2011? Should we expect a continuation of these kinds of growth rates or should we expect some moderation given that you have proper comps for the server market ahead? That’s my question, thank you.

[Mark Peek:]

Hi Kash, this is Mark. You know, certainly the first half of 2010, we saw a rebound in the economy and we, like most of the IT industry, benefited from this rebound. Sever growth rates were in the 20% range; they’re forecasted to grow at somewhat similar rates although moderating a bit in the second half. The early indications for 2011 on server growth rates is that they’ll decline somewhat significantly in 2011. So that said, our business, although it’s influenced by server growth and also is impacted by installed bases which are moving to virtualization, and then on the other side of that is enterprise agreements that we’ve sold in which companies have inventoried some of their licenses. So certainly the growth rates for 2011, we’re not going to give guidance at this time. We've just finished planning the second half of 2010 – we continue to be on six-month quota assignments. But we’ll give you more color as the year progresses.

[Kash Rangan:]

Thank you very much.

[Operator:]

The next question comes from Derek Bingham, Goldman Sachs. Your line is open.

[Derek Bingham:]

Hey gentlemen, congratulations on the quarter. I have a two-parter on ELAs. One is you had mentioned that they’re coming in typically over the size of the initial contract value. So I just wanted to be clear – when you're referring to that you’re just referring to the maintenance renewal portion of that contract that’s coming in kind of larger than the complete contract value that was signed in the first place. And then also just curious about what color you can give us in terms of any kind of associated license sales when you’re doing those ELA renewals in terms of how much people are increasing their deployments and buying new kinds of platform licenses, or SKU upgrades, new management tools, desktops, etc. Thanks.

[Todd Nielsen:]

Sure, this is Todd. The first point, just to clarify, when we said it was more than originally it’s not just the maintenance renewal but it’s the original value of the ELA. So in an original ELA there is a license component and then a maintenance component, and the renewals are coming in greater than 100% of the original ELA value. This is partly due to further expansion of more servers or more of the original product expanding its reach or scope within the customer, but as you mentioned it’s also a result of additional products or upgrades being brought into the mix. So the example I talked about was the financial services company that started off with our vSphere product and has now moved to View and SpringSource and expanding that way. And we’re seeing that trend across all of our ELA renewals.

[Derek Bingham:]

Thank you.

[Operator:]

The next question comes from Walter Pritchard, Citigroup. Your line is open.

[Walter Pritchard:]

Thanks. I’m wondering if you guys could talk a little bit more in detail about the comment you mentioned about your margin targets with I guess the potential that there could be disruptions from M&A. And I’m wondering, you had a little bit of disruption in the beginning of the year. I'm wondering are you contemplating disruption of that magnitude or is it possible that you guys would consider doing deals that are greater than what you’ve tackled so far? Thanks.

[Mark Peek:]

Walter, this is Mark. We guided 27% to 28% for the full year, and with the caveat that that could be disrupted by M&A but not that we had planned M&A in addition to the margins that we were currently targeting. In the second quarter we did have about a 150 basis point sequential change in margins as a result of M&A, but as a reminder in addition to Ionix, Gemstone and Rabbit, that also includes a full quarter of Zimbra in the quarter.

[Walter Pritchard:]

Just one follow-up, Mark. In the comments I think I heard you say that there was no impact from currency, and yet we all did see currency weaken pretty significantly. I was wondering was that a comment on your year-over-year currency or was that a comment on the sequential impact from currency?

[Mark Peek:]

It was really a comment on year-over-year currency. And we’ve had, remember that a lot of our operating costs are in those local currencies and so we benefited from that end; and then when we're talking about the top-line revenue it’s only the portion of license revenue recognized in the period that is in the foreign currencies in which we’re operating.

[Walter Pritchard:]

Great, thanks a lot.

[Operator:]

The next question comes from Brent Hill, UBS. Your line is open.

[Brent Hill:]

Thanks. Mark, you saw a nice acceleration in deferred revenue, up 58% year-over-year. I was curious if you could just comment on what the role of ELAs had with that versus an increase in transaction volume. It seems it’s a combination of both, but if you could just give us a sense. And as you head into the second half of the year I would assume that many of these ELAs that you started back in 2007 are going to continue to come up for renewal, so should we expect the continuation of that deferred trend in the second half of the year?

[Mark Peek:]

Sure. Well certainly most of the deferred revenue is driven by the maintenance component of all of our transactions, and across the board we have seen transactions coming in at more than two years of maintenance. So companies are taking advantage of modest discounts that we’ll give to add on an additional year of maintenance, and we bill and collect those within 60 days. This quarter ELAs ticked up sequentially. They had been in the mid-teens in Q1; they were at 20% during this quarter. But that said, even the traditional business through the channel has multiple years of maintenance associated with it. And the second part of your question?

[Brent Hill:]

Just in terms of how you’re viewing the second half of the year for ELAs in terms of the renewal rate. Is there anything that changes in the second half in terms of the dynamics on the renewals?

[Mark Peek:]

Well, we’re just beginning. This is really our second data point on ELA expirations within a quarter. We really started the ELA program in the first quarter of 2007. Most of them are set at about three years – some companies will vary outside of that norm. But there are a lot, there are more expirations coming up in the second half of the year and so we’ll have more data for you as the year progresses.

[Brent Hill:]

Thanks.

[Operator:]

The next question comes from Adam Holt, Morgan Stanley. Your line is open.

[Adam Holt:]

Great, thank you. The European business seemed like it was strong in the quarter. You obviously called out a number of countries that were particularly strong, yet the commentary for Q3 reflects I guess increasing concern about the environment. Did you see any change in Europe that would lead you to that or are you just being a little more cautious with respect to the guidance? And are you forecasting that the demand environment is a little bit weaker in Q3 than it was in Q2 in that geography?

[Todd Nielsen:]

This is Todd. When we look at the results and the performance in Q2 we certainly saw solid performance across the entire region, and the transaction business and the ELA business and the like. I think the conservative guidance is we watch the news and we hear what’s happening in Germany and Greece and Spain and some of the concerns – we just want to be cautious. But we look at our performance and results in Q2 and we are definitely pleased with the way we were able to execute.

[Mark Peek:]

And one thing I’d add to that is the results of the summer slowdowns in Europe. There will be this trend where companies will come back and begin their own planning exercises for the back part of the year with uncertainty in their business, and it becomes uncertainty in our business as well.

[Adam Holt:]

Mark, if I could just ask a quick follow-up on margins. If you net out the dilutions this quarter your margins were 29.5% ahead of where you guided to for the year. You talked about a 30% plus long-term operating margin. Is that still the mindset we should be thinking about in terms of longer-term margins or are you maybe a little bit ahead of that kind of longer-term goal in the current trajectory? Thanks.

[Mark Peek:]

Well, first and foremost we’re going to invest in the business organically, through technology acquisitions, and take advantage of the opportunities that we have in front of us. And so we are not margin-oriented. Certainly longer-term 30% plus is something that we should be able to achieve if we execute on the growth of the business, but first and foremost and what drives the margin performance over a year ago is the growth that we’ve had and the deferred revenue, and the renewals that come with it that we’ve put on the balance sheet.

[Adam Holt:]

Great, thank you.

[Operator:]

The next question comes from John DiFucci, JP Morgan. Your line is open.

[John DiFucci:]

Thank you. Mark, you had, when you gave guidance for this quarter, for the Q2 you said license would be down sequentially and obviously we saw it up so you guys did a great job there. But I’m just curious, can you just refresh us why you thought you’d see a decline in the quarter when you and just about everybody sees a sequential up tick into the Q2? And I guess sort of an add-on to Adam’s question, why would you assume license to be flat in this quarter when you typically see growth? Is it just being cautious about Europe? It sort of sounds like what Todd was saying.

[Mark Peek:]

You know, walking into the Q2 we benefited from some fairly large enterprise agreements in Q1, and so as we looked at our pipeline we weren’t expecting to have quite the strength that we had in the enterprise segments in the Q that we had. You may recall that we did a $10 million plus deal in Europe. We also had some OEM carryover in the Q1 which we didn’t carry over into the Q2, and so that was really what our guidance was about as we looked at Q2. As we think about the third quarter, you know, we’re saying flat to slightly down really because of Europe and the slowdowns that we expect to see in Europe, as well as we benefited in APAC from the year-ends in Australia and other regions. And we don’t expect to have the strength in our international geographies in Q3 that we had in Q2.

[John DiFucci:]

Thanks, just one quick follow-up. You said that headcount in the second half, you said headcount in the first half was plus 8200 and you expect, I just wanted to clarify that you’d expect something similar in the second half. Does that include any M&A or is that excluding any M&A?

[Mark Peek:]

What I wanted to indicate is that directionally we’re going to continue to invest in the business organically. We’re not going to forecast the M&A. But we added 1100 people in the first half of the year – about half of those were through M&A. But we’ve demonstrated that when we make the decision to hire we can execute on the hiring, and that we’re a very attractive place for people to come to work and that we’re able to attract top talent. And as long as we can attract top talent and put them to work productively we’re going to go ahead and hire.

[John DiFucci:]

Thanks a lot.

[Mike Haase:]

Operator, are there additional questions?

[Operator:]

The next question comes from Brian Marshall, Gleacher and Company. Your line’s open.

[Brian Marshall:]

Great, thanks. Hi guys, nice quarter. I was wondering if you could discuss a little bit about some of the trends you’re seeing in VDI, virtual desktop infrastructure? And based upon some of the checks that I’ve done recently it sounds like calendar year 2011 could actually be the year where this starts to be pretty material for some people including yourself, and I was wondering if you could comment on that as well?

[Todd Nielsen:]

Sure, this is Todd. As I think we’ve said in the past calls there’s a strong interest in VDI and desktop virtualization in general. We’ve in some quarters had as much as 60% of our proof of concept resource focused on desktop and desktop virtualization. With Windows 7 and those sorts of rollouts and upgrades on the horizon there’s definitely a strong interest as many customers are saying if they’re going to make the upgrade to Windows 7 they’re going to make a transformative change like a desktop virtualization effort as well. So I’m a little bit cautious to declare 2011 the Year of the Desktop since for the last few years it’s been declared the Year of the Desktop, but we are optimistic for the opportunity. That said, as I mentioned in my prepared comments, we are seeing a change or a slight mindset shift where people are starting to look beyond just VDI and consider how they’re going to deal with the proliferation of devices that are out there. And a theme we’re hearing from customers is "Help me manage users and then the devices will take care of themselves.” And so we’re thinking through our strategy and we’ll be rolling out our direction and vision about how we’re going to address this opportunity and the chance to meet these needs.

[Brian Marshall:]

Great, thanks Todd. And final question, I guess with regards to ELA trends, sort of a follow-up question. Basically do you think that there’s going to be a material dynamic where we see large enterprise customers as well as federal guys be pretty strong when it comes to renewals of those ELA contracts, and potentially see some weakness from some of the small- to medium-sized enterprises that sort of bit off more than they could chew and haven’t… I think Mark mentioned they have an inventory left?

[Todd Nielsen:]

At this point in time we track most of our ELAs that we’ve done. We’ve assigned a technical resource to them and we get a quarterly report on the progress of their use and consumption, and where they are on their virtualization journey. And we’re not seeing trends of oh, smaller customers are struggling relative to bigger customers. But across the board we’re seeing, you know, customer satisfaction and progress through that journey, and don’t expect anything except for them to follow the trend we’ve been seeing the previous few quarters, which is folks will renew at greater than 100% of the original value of the ELA.

[Brian Marshall:]

Great. Well done, thanks.

[Operator:]

The next question comes from Heather Bellini, ISI Group. Your line is open.

[Heather Bellini:]

Hi, thanks. I was wondering if you could talk a little bit about you know, the attach rate for management products; if you could help us ascertain that. And also what type of impact do you think the per-VM pricing that you mentioned will have on the contract value for those customers once the pricing change goes into affect? Thank you.

[Mark Peek:]

Hi Heather, this is Mark. You know, the attach rate on management products is, we’ve seen improvement and we’re pleased with what we’ve seen. We are also adding to the portfolio of management products. The per-VM pricing is something that we introduced in reality as a response to how customers consume the products and to make it easier for them to consume and to build their own ROIs on the value proposition that it adds. At this point we don’t expect it to have a material impact on the near-term economics for us, but certainly we introduced per-VM pricing to help both us and our customers.

[Heather Bellini:]

Great, thank you.

[Operator:]

The next question comes from Scott Zeller, Needham & Company. Your line is open.

[Scott Zeller:]

Thanks. Another question about Europe. Can you give us some color around the activity due to pent-up demand and how much of that still remains as you look forward to the second half of the year, versus strong data center refresh activity, for instance?

[Mark Peek:]

Well, it’s a little bit harder to tell as the year progresses how much of it is you know, pent-up demand versus changes to the business. What we had… Europe for us typically has not been a large enterprise license agreement market, so it’s, we have many more distributors and resellers in Europe and it tends to be very regional and very segmented. And so it's a little bit harder for us to get an overall view of the macroeconomics. We’ve seen more enterprise agreements and certainly we’re focusing our customers now that they’re on the journey of virtualization into the private cloud to enter into ELAs. You know, but as we enter the back half of the year we’re just being cautious really based on the macroeconomic trends and looking at our own pipeline.

[Scott Zeller:]

Thank you.

[Operator:]

The next question comes from Kaushik Roy, Wedbush. Your line is open.

[Kaushik Roy:]

Thanks, and congratulations again. Can you quantify in any way the license revenues you are getting from the desktop, or can you give a little bit more color on the type of environment or the traction you’re getting from the desktop? Thank you.

[Mark Peek:]

Yeah. Kaushik, we don’t break out license revenues by product category. What we have seen is particularly in enterprise agreements is that we will add to an enterprise agreement VDI and View. We’re seeing traction as Todd had mentioned in place of the traction, but we’re not going to break out the specific license revenue.

[Kaushik Roy:]

I mean when do you expect the VDI to be material – do you think Q4 or 2011?

[Mark Peek:]

That’s hard to say, particularly because the steam and the momentum we have with vSphere. But the desktop wins we’re getting are developing… I know there was a number of customers in Q2 that purchased and are in the early phases of their deployments, and as they roll them out it’s only a matter of time before it kicks in to the additional licenses and we see that impact.

[Kaushik Roy:]

Okay, thank you.

[Operator:]

The next question comes from Jayson Noland, Robert Baird. Your line is open.

[Jayson Noland:]

Okay great, thank you. Just a question on SMB. With the new price point and features in the bundle, I guess is this partially in response to Microsoft? When we hear about success with Microsoft it’s in SMB and fairly rare. But I’m curious about what kind of penetration you have in SMB versus Enterprise, and what sort of market share you have in SMB versus Enterprise.

[Todd Nielsen:]

This is Todd. So historically we’ve made this move throughout the years where we’ve taken you know, some of our core features and we’ve cascaded it down the waterfall to the SMB type SKUs. So the move for vMotion was one we planned on doing and executed with the release of 4.1. As far as the success in SMB, we’ve been incredibly impressed with the traction we’re getting - 100% growth in units sequentially in the Essentials products is a great testament to the opportunity we have in that space, and the success we’ve been getting, and not just in the US but around the world. And so as far as market share gains, we look at the reports and where it goes. If, what we’re seeing, you know, you assume Microsoft is seeing similar stuff. It’s a great opportunity for us to continue to grow and expand our reach, and with this move that we have made with 4.1 we expect good things in the future.

[Jayson Noland:]

Thanks, guys. Congrats on the quarter.

[Mike Haase:]

Operator, we’re going to take two more questions, please.

[Operator:]

The next question comes from Rob Owens, Pacific Crest Securities. Your line is open.

[Rob Owens:]

Great, thank you very much. I wanted to drill down a little bit into View 4.5 and some of the functionality associated with that in terms of personalization or client-side hypervisor. Although the product now hasn’t been released I think it’s been reported that these things have potentially slipped out. I was just curious how critical or how crucial you think that type of functionality is to the long-term success of View 4.5? Thanks.

[Paul Maritz:]

Okay, I’ll do some work here – this is Paul. There are really two things here. One is client-side hypervisor. We are providing client-side, big client-side functionality with our offline View capability which comes as part of 4.5. The feedback that we got from our customers is the market’s not ready yet for a bare metal, naked hypervisor, and instead we are supplying essentially a Windows within Windows hypervisor which gives us much better coverage over the installed base in particular. The challenge with the bare metal hypervisor is how do you address the installed base? So we made that change based on customer feedback. In terms of the persona functionality, we think it’s important. As you said we’re moving to place the emphasis increasingly on the line of our customers not to having to worry about the peculiarities of devices and worry more about equipping their employees with a certain set of functionality applications and information, and mapping that to whatever particular device that they have. So that’s an area we’re invested in where you can expect to see some very interesting announcements from us down the road.

[Rob Owens:]

And along those lines, Paul, PC over IP, are you happy with where it is now? Is there more work to be done on that front?

[Paul Maritz:]

We’re very happy with it. There’s always more work to be done on everything, but as far as the protocol itself is concerned we’re very pleased with where it is.

[Mike Haase:]

Any questions?

[Operator:]

The last question comes from Michael Turits, Raymond James. Your line is open.

[Michael Turits:]

Hey guys, two questions – one on ELAs, one on pricing. On ELAs I know that you said that the average maintenance term length overall is 24 months. Are you still holding at three years for most of the ELA renewals? And then I have another question.

[Mark Peek:]

Um, the blended average is more than 24 months. I didn’t look at the Q2 data but I believe that is the case, that we are doing about three years of maintenance on the ELA renewals.

[Michael Turits:]

Okay. And secondly, on the View script pricing, you’ve gone to VM-based for the management piece but obviously not for the vSphere itself. Are you starting, despite the strength in licensing this quarter, are you starting to see any negative impact on licensing as customers start to move up to 6-, 8-, and 12-core chips? And if so might you move there, move to per diem pricing overall at some point?

[Todd Nielsen:]

This is Todd, again. I would say the answer to that is no. We’re finding as customers have progressed down the virtualization journey, as they move toward phase 2 and phase 3 of the journey, it’s really less about consolidation ratios and more about just the quality of their IT infrastructure and business continuity, and agility and the like. And so I don’t foresee us at the core infrastructure layer with vSphere going to a per-VM type model. It makes sense for customers of some of the management products and arguably VDI is a per-VM model today as well, but it doesn't really make sense at the infrastructure level for us.

[Michael Turits:]

Great, thanks very much.

[Operator:]

Okay, that concludes the call. Thank you everyone for participating.