VMware, China Telecom Team Up for Hybrid Cloud Service - Analyst Blog

VMware Inc. ( VMW ) recently agreed to form a partnership with China's biggest cloud service provider, China Telecom Corp. to launch a hybrid cloud service in China. The company has plans to launch the service in Japan as well where it will partner with SoftBank to market it.

This new cloud service will initially offer Infrastructure-as-a-Service (IaaS). It will also be equipped to deliver solutions like disaster recovery-as-a-service and desktop-as-a-service.

The new service will be based on VMware's software. However, in China these solutions will be operated by China Telecom under the brand name "CTE-surfing Hybrid Cloud Services" (powered by China Telecom and VMware).

China Telecom will market these services to large and mid-sized companies as well as government departments including financial, energy, transportation, education, healthcare and insurance in the fast growing Chinese cloud computing market.

Per the deal, only the technological knowhow will be provided by VMware whereas all other aspects will be taken care of by the Chinese company. Hence, any issues relating to breach of cyber security or otherwise will be under the purview of China Telecom only.

Of late, the Chinese Government, in a bid to protect its domestic industries, has been accusing the U.S.-based companies operating in China of spying. Moreover, the reports from the former NSA contractor, Edward Snowden reveal that the US NSA had spied on Chinese leaders and businesses. All of these factors have played their part in making the Chinese Government sceptic about the operation of US-based firms in China.

U.S. equipment and software providers such as IBM Corp. ( IBM ) and Cisco Systems Inc. ( CSCO ) have experienced a major drop in their sales in China in 2013 following the charges of spying imposed on them.

Per the terms of the alliance, China Telecom will be selling the service under its own brand hence, VMware hopes that it will be able to successfully do away with the charges of accusation. Moreover, this alliance will also help the company in its international expansion-related activities.

Cloud development forms an integral part of China's twelfth 5-year plan and hence is of prime importance. Per IDC, the total public cloud market in China will grow at a CAGR of 25.0% from $1.46 billion in 2014 to $2.89 billion in 2017.

We believe that VMware's ability to innovate, enter into new technological collaborations and solutions, along with its existing product pipeline and strategic investments will enable the company to drive its top line over the long term. However, stiff competition from the likes of Microsoft ( MSFT ) and Citrix Systems remains a major headwind going forward.

Currently, VMware has a Zacks Rank #4 (Sell).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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