VMware jockeys for a piece of Pentagon's $10B JEDI deal

VMware
Due to its hybrid cloud partnerships with Amazon Web Services and Microsoft, VMware could tap into some of the Pentagon's $10 billion JEDI cloud contract. (Monica Alleven/FierceWireless)

Due to its hybrid cloud partnerships with both Microsoft and Amazon Web Services, VMware appears to be well-positioned to get a trickle-down piece of the Pentagon's $10 billion JEDI contract.

The topic of the JEDI (Joint Enterprise Defense Infrastructure) cloud project came up during VMware's Thursday afternoon first-quarter earnings call. The Pentagon put out an RFP for one vendor to manage its cloud needs, which includes a primary data repository for the military services worldwide.

The field for the contract has been whittled down to Microsoft and AWS, with the winner slated to be announced in mid-July. The selection process hasn't been without controversy as Oracle filed a lawsuit in December in the U.S. Court of Federal Claims that alleged there were conflicts of interests and unfair requirements in the contract process.

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During his opening comments on Thursday's earnings call, VMware CEO Pat Gelsinger said that VMware on AWS Cloud recently earned Federal Risk and Authorization Management Program (FedRAMP) certification. FedRAMP is a government-wide program that provides a standardized approach to security for the cloud.

RELATED: Microsoft, Amazon still in the running for Pentagon's $10B JEDI contract

"The high baseline requirements are used to protect the government's most sensitive unclassified data and cloud computing environments." Gelsinger said on the earnings call.

During the Q&A, Gelsinger was asked directly whether, given its relationships with both AWS and Microsoft, VMware would have the opportunity participate in the JEDI contract. In response, Gelsinger said his previous comments about the FedRAMP certification were along that vein.

"We're now in the FedRAMP approval process to achieve our ATO, or authority to operate," he said. "That's a critical milestone for us as that occurs, and obviously while we can't forecast the winners or losers in that (contract process) and what protests may or might not occur as a part of it, we are getting our offering ready to be able to be a cloud provider to government. And, I'll also point out that our installed base with the federal governments with defense with the various military intelligence communities is very high.

"So we see this as a significant opportunity and one that is an extension of our VMware cloud offering (that) is quite critical to us. So we are aligning ourselves up in a way that I think positions us to be participating with that. Obviously, our partnership with Amazon in this area is very strong and important to us, and we're hopeful that becomes a nice piece of business over time."

On the Microsoft side of the equation, Dell Technologies, VMware and Microsoft announced last month a hybrid cloud partnership, which is called Azure VMware Solutions, that lets customers run VMware’s software stack in Microsoft Azure's public cloud. Dell Technologies owns a majority stake in VMware.

VMware's first-quarter numbers

VMware posted fiscal first-quarter net income of $505 million, or $1.21 a share, which was down from $942 million, or $2.29 a share, in the same quarter a year ago. The latest first quarter included an unexpected gain of $132 million from VMware's investment in Pivotal Software, the company said.

On a non-GAAP basis, VMware earned $553 million, or $1.32 a share, on revenue of $2.27 billion. Analysts polled by FactSet were expecting earnings of $1.28 a share and revenue of $2.24 billion.

VMware's license revenue for the first quarter was $869 million, which was an increase of 12% from the first quarter of fiscal 2019. Operating cash flow for the first quarter was $1.27 billion, while free cash flow for the first quarter was $1.20 billion.

Looking ahead, VMware is sticking to its fiscal 2020 forecast with expected revenue of $10.03 billion. Analysts are expecting revenue of $10.02 billion with earnings of $6.53 a share. VMware also said that its board has authorized up to $1.5 billion in stock repurchases through fiscal 2021.

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