Oct 26, 2016
Executives
Paul Ziots - VP, IR Pat Gelsinger - CEO and Director Zane Rowe - CFO
Analysts
Matt Hedberg - RBC Capital Markets Raimo Lenschow - Barclays Mark Murphy - JPMorgan Keith Weiss - Morgan Stanley Brent Thill - UBS John DiFucci - Jefferies Walter Pritchard - Citi Heather Bellini - Goldman Sachs Kash Rangan - Bank of America Merrill Lynch Kevin Buttgieg - MKM Partners Michael Turtis - Raymond James Gregg Moskowitz - Cowen and Company Brad Reback - Stifel Shannon Cross - Cross Research
Operator
Welcome to VMware Third Quarter FY '16 Earnings Conference Call. Today's conference is being recorded and at this time I'd like to turn the conference over to Mr.
Paul Ziots, Vice President of Investor Relations, please go ahead sir
Paul Ziots
Thank you, good afternoon everyone and welcome to VMware's third quarter 2016 earnings conference call. On the call we have Pat Gelsinger, Chief Executive Officer and Zane Rowe, Executive Vice President and Chief Financial Officer.
Following their prepared remarks we will take questions. Our press release was issued after close of market and is posted on our website where this call is being simultaneously webcast.
Slides which accompany this webcast can be viewed in conjunction with live remarks and can also be downloaded at the conclusion of the webcast from ir.vmware.com. On this call today we will making forward looking statements are subject to risks and uncertainties.
Actual results may differ materially as a result of various risk factors including those described in the 10Ks, 10 Qs and 8Ks VMware filed with the SEC. We assume no obligation to and do not currently intend to update any such forward looking 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 in isolation from GAAP measures.
Our non-GAAP measures exclude the effect on our GAAP results of stock-based compensation, amortization of intangible assets, employer payroll tax on employees transactions, acquisition and other related items and include non-GAAP tax rate adjustments. You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP measures in the press release and on our Investor Relations website.
Webcast replay of this call will be available for the next 60 days on our company website under the Investor Relations link. Our fourth quarter 2016 quiet period begins at the close of business, December 15 2016.
Unless otherwise stated, all financial comparisons in this call will be in reference to our results for the comparable period of 2015. With that, I'll turn it over to Pat
Pat Gelsinger
Thank you Paul and good afternoon everyone. This has been a very good quarter for VMware.
We continue to see momentum behind our newer gross businesses and announced an extension of our leadership in the hybrid cloud with important new partnerships and offerings. Revenue grew 6% year-over-year to $1.8 billion with non-GAAP earnings of $1.14 per share.
In terms regional bookings performance, Asia Pacific performed particularly well, followed by EMEA and the Americas. We had balanced performance across our routs to market in the quarter and our OBM partner business grew year-over-year.
Our strategy is strong we're confident about our outlook and growth. The strength of our diversified product portfolio was a highlight of the quarter.
Compute and management bookings exceeded expectations in Q3 as some of our largest customers decided to double down on VMware core technologies and extend their strategic commitments to the e-sphere. NSX, AirWatch, our hyper converged offerings including virtual SAN and VxRail and our vCloud Air network business grew robustly.
We didn't perform as expected with our end user computing desktop business, with a number of deals pushing into Q4. Let's turn now to our cloud strategy.
At VMworld in late August we announced VMware's new cross-cloud architecture. We believe this is the world's most complete and capable hyper cloud architecture and uniquely offers customers freedom and control in their infrastructure decisions.
This new architecture extends our hybrid cloud strategy with new public and private cloud capabilities that enable our customers to run, manage, secure and connect all their applications across all clouds and all devices. VMware cloud foundation is at the core of our hybrid strategy.
It makes the private cloud easy and enables customers to extend their private cloud into the public cloud using a proven and familiar set of software and tools. VMware cloud foundation is a unified software defined data center platform that provides the virtualized infrastructure including vSphere, virtual SAN and NSX to build both private and public clouds.
Our vCloud Air network partners which continue to show strong growth in Q3, are already expressing strong interest in including VMware cloud foundation as part of their own service offerings. You will have heard our announcements about two significant cloud partnerships which bring VMware cloud foundation to the public cloud.
We announced an expansion of our cloud partnership with IBM which is providing a service to help customers quickly and easily move enterprise workloads to the cloud. We're seeing strong customer momentum from the partnership with more than 1000 joint customers to date.
And two weeks ago as part of our new strategic alliance with Amazon web services, we announced VMware cloud on AWS, a new cloud service that would be delivered, sold and supported by VMware. VMware cloud and AWS represents the best of both the private and public clouds, will make it easier for our customers to run any application using a standard set of familiar software and tools in a consistent hybrid cloud environment.
Cross cloud services are an additional key component of our hybrid cloud strategy. During Q3 we previewed these new SaaS offerings that will provide unparalleled connectivity, security and visibility across multi-cloud IT resources regardless of whether the underlying infrastructure is VMware-based.
Our customers are responding positively to the VMware hybrid cloud strategy as the industry's most complete and comprehensive hybrid cloud offering. It provides the broadest choice on how customers can benefit from VMware's SDDC offering and software for the private cloud as a service from VMware or as a service from one of our partners.
It then enables them to run, manage, connect and secure their applications across clouds, independent of the underlying infrastructure. During Q3 we announced the broad refresh across our entire SDDC and EUC product lines.
Last week at VMWorld Barcelona we introduced VMware vSphere 6.5, VMware Virtual San 6.5 and VMware vRealize Automation 7.2. All three of these new versions provide support for containers and containerized apps and workloads.
We also introduced significant enhancements to the vmWare Photon platform including built-in support for Kubernetes and networking and storage services powered by NSX and virtual SAN. As part of our end-user computing portfolio, we announced advancements to VMware Horizon and VMware Workspace ONE.
Workspace ONE now offers a new unified endpoint management and security approach for managing Windows 10, allowing customers to virtualize their applications and desktops as well as manage the physical desktop with AirWatch. We also extended our partnership with Symantec which is now strategically partnering with AirWatch to deliver an integrated approach to mobile threat defense and remediation.
We continue to receive strong recognition from industry analysts. In Q3, VMware was positioned in the leaders quadrant of Gartner's August 2016 Magic Quadrant for x86 server virtualization infrastructure.
Also this quarter IBC named VMware is a market share leader in both the worldwide cloud systems management and the data center automation software markets based on 2015 revenues, the third consecutive year that we have topped both categories. Today we're making some organizational and leadership changes designed to better align VMware with our future as a cloud services company.
We're forming a new products and cloud services organization which will be co-led by Raghu Raghuram and Rajiv Ramaswami who are taking on expanded roles as Chief Operating Officers Products and Cloud Services. Sanjay Poonen will also be taking on an expanded role as Chief Operating Officer of Customer Operations, responsible for our worldwide sales, sales operations, services, partnership, marketing and communications.
A big part of our success are the values that bind us together and we refer to VMware's values as EPIC2. One of the c's stands for community and the contribution we strive to make to the growth and the well-being of every community we're part of and do business in.
Recently we released our global impact report for 2015. In this report we expanded and elevated our long-standing commitment to driving innovations that contribute to a net positive future in sustainable growth.
The global impact report includes our VMware 2020 vision which outlines our sustainability roadmap and details the aspirations we have established for ourselves across the areas where we feel we can make the greatest impact. According to a recent report of this by IDC, VMware server virtualization products alone have avoided 603 million MWh of power consumption since 2003, enough to power 53 million average U.S.
households for one year. With the VMware 2020 vision outlined in the report, our sustainability roadmap serves as a force for good, where we contribute more to society, the environment and the global economy and we take.
In concluding, we're extremely optimistic about the opportunities ahead. Thank you for your continued interest in VMware and we look forward to sharing more around the opportunities we see ahead as we implement our new cross cloud architecture and partnership agreements.
I'll now turn it over to Zane to talk more about our business performance in Q3
Zane Rowe
Thank you Pat and thanks to all of you for joining us today. I'm pleased to report another good quarter for VMware, thanks to all of the team's efforts and the continued support and commitment from our partners and customers.
The strength of our diversified portfolio positions us very well for our cloud strategy and thriving ecosystem. I'll start with a brief overview of the P&L and balance sheet, followed by product bookings and then conclude with updated guidance.
For Q3 total revenue grew over 6% year-over-year and license revenue increased over 1%. Our hybrid cloud and SaaS offerings driven by vCloud Air network, vCloud Air and AirWatch as a service grew in the strong double-digits year-over-year and comprised approximately 8% of total revenue in Q3.
Non-GAAP operating margin was 33.3% and non-GAAP EPS was $1.14 per share, up 12% year-over-year. Share count for the quarter was 425 million diluted shares.
Cash and short term investments totaled $8.3 billion, $1.6 billion of this is domestic cash which is net of approximately $1 billion in stock repurchases made in Q3. Unearned revenue was $5.1 billion, with $1.8 billion of this amount long term.
Bookings growth was strong in Q3. This growth is a reflection of customers choosing VMware for their proven platform solution and confidence in our go forward strategy.
The year-over-year growth rate for total revenue, plus the change in unearned revenue was 13% and the growth rate for license revenue, plus change in unearned license revenue was 9%. Compute license bookings were once again less than half of our license bookings in Q3, as the majority of license bookings come from other products, such as vRealize, NSX, vSAN and end-user computing.
Support and services bookings growth showed strength in Q3, with a number of our largest customers making long term commitments to our platform. Support and services has a strong pipeline of renewal opportunities.
This recurring business provides an opportunity to upsell and cross-sell our newer products when agreements come up for renewal. Turning to our products, compute license bookings and total compute bookings were both up in the high single digits year-over-year.
Management license bookings were up approximately 10% and total management bookings increased approximately 20% year-over-year in Q3. Growth in compute and management exceeded our expectations this quarter which is a reflection of good overall momentum and a number of large customers doubling down on VMware core technologies.
NSX customer momentum continued in Q3, with an increase in customer count to over 1900, a greater than 100% increase year-over-year. License bookings grew over 30% year-over-year as we see breadth and industry segment adoption end use cases which include micro segmentation, IT automation and application continuity.
The NSX platform is a fundamental tenet in our software defined data center vision, it's a core component of our multi-cloud strategy and is a key part of every VMware solution. Our hyper converged software license bookings continue to exceed our expectations with vSAN and VxRail increasing over 150% year-over-year.
Customer count rose to over 5500, up more than 500 customers since last quarter. License bookings for vCloud Air network which includes multiple product offerings, grew 35% year-over-year.
A wide variety of cloud and service providers from around the world utilized VMware software defined data center products to deliver cloud services to their customers. In particular, our partnership with IBM showed tremendous growth year-over-year.
We saw mixed performance in our end-user computing license bookings this quarter which decreased overall in the low single digits year-over-year. AirWatch license bookings continue to grow in the mid teens year-over-year, however the desktop business was weak.
We remain encouraged about the growth potential of the desktop business and have a sizable pipeline of large deals. Overall, we grew our EUC customer count by nearly 10% to approximately 66,000 customers, including about 80% of the fortune 1000.
Our Workspace ONE solution which brings together VDI, EMM and identity for the first time in the industry is seeing strong interest with customers. In Q3 we bought back approximately 14 million shares and had approximately $184 million remaining on the repurchase authorization at the end of the quarter.
In Q4 we subsequently completed execution of our $1.2 billion buyback. We're currently in discussion at the board level regarding future capital allocation policy.
Now turning to guidance, we're increasing our full-year guidance for revenue, non-GAAP operating margin, non-GAAP EPS and operating cash flow due to stronger than expected performance in Q3, as well as a higher outlook for Q4. We're increasing the midpoint of our license revenue guidance for 2016 for by $23 million to $2.757 billion.
We're increasing the midpoint of our total revenue guidance for 2016 by $50 million to $7.50 billion. We expect this revenue momentum to continue into next year and will provide a detailed view along with all guidance items in January.
For 2016 we're also increasing our non-GAAP operating margin guidance to approximately 32.1% and increasing the midpoint of our non-GAAP EPS range by $0.06 to a midpoint of $4.36 per share. And finally, we're increasing our operating cash flow guidance by $25 million $2.325 billion.
For Q4 2016, the midpoint of our license revenue guidance is $850 million and midpoint of our total revenue guidance is $1.990 billion. We expect non-GAAP operating margin to be approximately 36% and midpoint of our non-GAAP EPS to be $1.39 per share.
Additional details on guidance are provided in the slide deck accompanying this call. Our board has approved a transition to the Dell fiscal calendar a 52-53 week year which ends on the Friday closest to January 31.
We will have a transition period from January 1, 2017 to February 3, 2017 and beginning February 4, our calendar will be aligned to Dell's fiscal 2018. The first quarter of fiscal 2018 will begin on February 4 and end on May 5, 2017 and the transition period's results will be included in the first 10 Q of fiscal 2018.
The calendar for fiscal 18 will be posted on our IR website shortly. In summary, Q3 was another good quarter and due to the strength of our portfolio we're increasing guidance for the year.
Our balance sheet remains strong and we returned $1 billion to shareholders in the form of share repurchases in the quarter. Our recently announced cross cloud architecture and VMware cloud foundation further extends the strategic value of our proven platform solution.
With that, I'll turn the call back to Paul.
Paul Ziots
Thanks Zane. Before we begin the Q&A, I'll ask you to limit yourselves to one question, consisting of one part, so we get to as many people as possible.
Operator, let's get started.
Operator
[Operator Instructions]. We will go first to Matt Hedberg with RBC Capital Markets.
Dan Bergstrom
It's Dan Bergstrom for Matt Hedberg. Could you talk about the Palo Alto partnership a little bit, I know they've got nice momentum in virtual firewalls.
Just curious from your perspective
Pat Gelsinger
The Palo Alto relationship has really been a solidifying one for our position. The security use case around NSX and NSX, very strong momentum expanding customer presence.
And the integration that we did with Palo Alto networks allows our policy managers to be deeply integrated with theirs, micro segmentation to automatically work with all of the capabilities of Palo Alto. Also we expanded that to include the AirWatch relationship as well and so strong integration for both client use cases as well as network used cases.
And overall, the fact that we have shared SKU now, we have good sales accountability between the two teams, an expanding set of joint activities and we're really quite excited about that relationship. And it really is to us, one of the partnerships that we have, including Arista, F5 Networks, Check Point and others as we're seeing a growing ecosystem of partners around the NSX platform that is really bringing that together in a powerful way in the industry.
Operator
We will go next to Raimo Lenschow with Barclays.
Raimo Lenschow
You talk about for next year about the continuation of the revenue trend, can you give us a little bit more meat on that one in terms of the puts and takes that we should consider? Thank you.
Zane Rowe
As I mentioned in my prepared remarks, we're not going to get into too much more detail other than for the fact that we've seen good momentum this year that we expect to continue. So obviously, as you think about revenue heading into calendar year 2017, with that qualifier I would say both license and total revenue we'd expect to see at least the levels that we're experiencing this year.
Pat, I don't know if you want to talk a bit about some of the products, obviously we're excited about some of the new product introductions, that will be part of that guidance that we'll give in January
Pat Gelsinger
Yes Raimo and I'll just say thanks for the question. We really have seen a growing momentum in the business and given the VMworld events in U.S.
and EMEA, the cross cloud architecture, the partnerships that we've announced and essentially a refresh of the entire product line, there really is a strength and enthusiasm we really had a palpable response from the VMworld audience. So we really are feeling that momentum and as Zane said, expect the two continue into 2017.
Zane Rowe
Raimo, just to add to that, obviously it's the revenue growth rate that we're talking about with the momentum into next year.
Operator
We will go next to Mark Murphy with JPMorgan.
Mark Murphy
So Pat, I wanted to ask you, the billings growth is the strongest you've had in about a year-and-a-half and so I'm just curious as it relates to the Dell relationship, where are we in the multi year process of building toward that $1 billion target of annual revenue through the Dell distribution channel? I'm trying to understand if there is any noticeable material contribution whatsoever at this point or is that entirely still on the comp here in the next few years?
Thank you.
Pat Gelsinger
Yes, with the deal closed now, many of the efforts are really moving from planning phase into early implementation, but many of those will really only take effect in 2017. So we expect modest impact in 2016 which is built into the guidance that we've given and expect to see growth in that and 2017.
As we've described, we expect those to be broad across our business, across all the product areas, compute, EUC, storage appliances and across the geos and marketplaces as well. But the bulk of that billion dollars of acceleration over the next several years will really start to take effect in 2017 and beyond.
I should also comment as well that even this quarter we did see overall growth in our OEM business and that OEM momentum was good, not just from Dell but our other OEM partners as well and that was a strength and a balanced effort of our overall go to market was -- we sold a good balance performance across all of our outs to market and OEM was one of those.
Operator
We will go next to Keith Weiss with Morgan Stanley.
Keith Weiss
I wanted to go a little bit into EUC, second quarter in a row that we've had some difficulties there and talked about yield slippage. If we dig into the reasons why it's similar to what we saw in Q2, is there an evolving story there?
And did price increases -- we heard about some price increases from our channel conversations. Did price increases have anything to do with those deals pushing out into Q4?
Pat Gelsinger
Yes, overall when you think about the EUC business, it really is the two parts, it's the mobile and the desktop part. We did see growth in AirWatch, the mobile piece of it, that's we're now clearly seeing as the leader.
Good response to the products and announcements that we did. The other part, the desktop part, is the part that we didn't have a good quarter and we did see ongoing execution issues.
As we reflect the last quarter we had merged the desktop and mobile sales teams and we're really reorienting our sales motion overall toward a consolidated strategic Workspace ONE combined sales motion. The slip deals, we did have a number of those into Q4, we have now executed nearly half of those slip deals are already complete at this point.
We do have a very large pipeline of large deals in Q4 so we do feel optimistic about the return of the growth in that business. But we have seen a couple of quarters that this sales integration has led to difficulties and we're really anxious to get ourselves back in the footing, with the strong pipeline that we have, we believe that that will be in Q4.
Operator
We will go next to Brent Thill with UBS.
Brent Thill
Can you just remind us the dynamics of the Enterprise Licensing Agreement cycle? This year I think you have a tailwind but it turns to somewhat of a headwind, can you just provide a little more color around what the shape of that looks like?
Thank you.
Zane Rowe
Yes, we've obviously experienced a nice increase in our renewal cycle tied to the enterprise agreements that were signed roughly 3 years ago. We actually see this trend continuing, as we look at the next year we expect to see it once again be a meaningful number and expect to see growth in this area for next year.
So I wouldn't characterize it as a headwind, the increase isn't quite as much as this year's, we expect that. The renewal cycle allows us to do a number of things with our customers including cross-selling and up selling, in particular with our new product.
So we're very pleased with the opportunity this year and as we move into next year, we're as pleased with that opportunity to work with our customers.
Operator
We will take our next question from John DiFucci with Jefferies.
John DiFucci
Thank you. Pat, I have a good question and maybe Zane will chime in on this too, because it's these are specific numbers.
When you talked about -- it sounds like, as Mark pointed out, your billings were better than they've been since 2015, but most importantly, license billings. And I'm just curious, is it core compute you said last quarter was declining but not as much as you had planned for it.
But if you take core compute or you take these here and you add compute management tools, are license billings for that business, that combined business which I personally see as one business, is that also declining or is that actually growing at all?
Zane Rowe
John, I'll start out and then let Pat talk some. Obviously this quarter had balanced growth across all products and while we don't necessarily break out the management products from the compute products, we did see, to some extent, a surprise in the strength in compute and it was a pleasant surprise for the quarter.
I think it's interesting, sort of pulling them back together. Obviously as we think about our portfolio and the strength in the portfolio it's not just compute but management and then extending into NSX and a number of the other products that drive that strength.
So we're pretty comfortable with the combined outlook that we've given the longer term outlook on compute, but also comfortable in what that does for, with our larger customers doubling down, what that does for the whole portfolio.
Pat Gelsinger
Yes and as we indicated the earlier comments, that was a very good quarter for compute. As you said, our selling motion has largely shifted to be compute plus management, so we had good execution overall, 20% plus growth in management this quarter.
And generally, it was a good performance overall, we had several large customers make large double down commitments on VMware. And VMware is the platform of choice for those customers and it really is a showing the strength of our strategy and the relationships of some our largest customers
Zane Rowe
John, just one last thing to help you out as you think about combining those, if you were to think about the all in compute and all in compute including management, they were up strong, I'd say high single digits in combination.
John DiFucci
The license, Zane? You're talking about license?
Zane Rowe
Right.
John DiFucci
License for compute and license for management together up in the high single digits.
Paul Ziots
Thank you John, next question please.
Operator
Next we will go to Walter Pritchard with Citi.
Walter Pritchard
Thanks. So on -- I was over at VMWorld Europe, there was quite bit of talk around the interview-esque [ph] relationship there and I'm wondering, I know it's early, could you help us understand how that offering will be positioned and how, if that sees a good uptick, it feels like just the other vCloud Air partner, but I'm assuming that would drive more ratable revenue.
Just love to hear if you're positioning that product as a premium product or not and then what impact would be on financial statements if you do see significant uptick of that offering
Pat Gelsinger
Sure Walter and obviously given some your earlier comments I was actually quite excited to talk to you after the AWS announcement. And we're excited about the announcement, it really is bringing together the best of both worlds, as we described that the leader in private cloud, that the leader of public cloud, bringing the seamless hybrid cloud service, great response from customers and they see it both the benefits of the service as well as the strategic direction that it helps them to make their overall cloud strategies and plan, will be offered as a service from VMware that will sell support and maintain for customers.
Also given that it is the full SDDC stack, so it's compute, network, storage, management for many of our customers who see this as a very positive step for them and in many cases will be the fastest way for them to get onto the full software defined data center, so an acceleration of the adoption of the full stack. So we see that as a good revenue opportunity for us and a great value proposition to our customers.
As we said in the announcement, it will be available the middle of next year, so it'll really only have modest financial impact next year and growing in the subsequent years, but it does for us give a strategic tool overall that we think will be very powerful for the marketplace. Zane, anything to add on the business impact?
Zane Rowe
No, I think that's right Pat. As you look at our guidance for next year and as we get into that, into next year, I would moderate your expectations around the revenue element for next year, but we're very excited beyond next year.
Operator
We will go next to Heather Bellini with Goldman Sachs.
Heather Bellini
Pat, I had a question for you just in terms of if we look at that announcement with AWS and it clearly suggests to at least up that there is -- AWS needs to have this hybrid workload environment and make it easier for customers which you guys fit nicely into. I guess from that vantage point, where do you see the whole public cloud movement and what type of apps do you think have already migrated over from your standpoint and where are we still having a hard time where hybrid cloud becomes really important, where people might be replatforming and aren't necessarily wanting to make the decision to forklift over and move things.
I'm just wondering from your vantage point where you think we're in the evolution of public cloud and what your outlook would be for hybrid coming into focus over the course of the next five years. Thank you.
Pat Gelsinger
Certainly, thank you Heather. And generally people haven't replatformed apps largely to the public cloud, they've built new apps in the public cloud and the attempts to replatform applications have actually been difficult.
And now that Amazon is well present in the industry and used by many of our customers, that's exactly what led to this announcement and the partnership, is the fact that customers are using AWS, they have large franchises of VMware and they're really saying can I bring these two things together into a more seamless offering and so that offering was really driven by those joint customer increases. And we really do think that this opportunity to have the seamless hybrid experience from off premise to hybrid, to also taking advantage of the native services of Amazon, that together really presents a very compelling value proposition for customers.
And in fact will accelerate their overall ability to take advantage of the cloud writ large and so we do see this large hybrid cloud opportunity. With regard to the overall size of the cloud, we covered a fair amount of that in my VMworld keynote, we just published a white paper on the shape and acceleration of that that we just released, I think on Monday of this week, Heather.
And there's a long journey to go until we hit halfway which we forecasted in 2021 is when we get halfway to cloud, both the combination of private and public and increasingly we think the hybrid cloud strategy will be a key component of customer strategy for their overall migration to the cloud.
Operator
We will take our next question from Kash Rangan with Bank of America.
Kash Rangan
Sorry, my line was on mute. Can you hear my question okay?
Okay, great. I'll give this quick and I apologize if this has been asked already in some way shape or form, with respect to the AWS partnership, I'm curious to get your thoughts on what are the incentives on part of AWS organization to position and sell in market the VMworld family of products in 2017?
That's it for me, thank you.
Pat Gelsinger
Yes so AWS, as you would of heard from the announcement that Andy, Jeff and myself did, they are hearing the same thing from their customers, this mutual interest in seeing these two capabilities come together. And the service announcement that we did will be primarily sold and supported by VMware, also available through the Amazon marketplace and there'll be incentive to sell that as well.
And it really is responding to this mutual interest by our customers and what we've seen from the customer response since the announcement is extremely strong and we do expect our teams to be working with theirs to bring that to market. I'd also point out, Kash, that this is in the context of our overall cross cloud architecture.
We're intent on giving our customers cloud choice through cost cloud services, through the Amazon partnership, our IBM and our other B-cloud, Air Network partnerships, overall this is a key aspect of us delivering the broadest set of cloud strategies in the industry.
Operator
We will go next to Kevin Buttgieg with MKM Partners.
Kevin Buttigieg
Last year you had characterized customers slowing down there on premise purchases while they were evaluating their cloud strategies. Now you obviously have a much more filled-out cloud ramp originally with the IBM agreement and now with AWS, do you think that that has had an impact, I guess IBM to thus far, on how customers are viewing their on premise purchases and do you think that's part of the doubling down that you've seen so far and does that change your long term thinking about the server compute business?
You previously characterized that as being in long term secular decline. And wondering if having a better cloud roadmap changes that.
Pat Gelsinger
Overall we'd say that now that the cloud is becoming a presence in customer strategy, this clarity of our overall strategy, the tools we're laying out for customers has clearly improved our ability to satisfy their needs for supporting the cloud. So we do see that as accelerant overall for cloud adoption by our customers.
We certainly, in the case of the IBM relationship, as IBM has said, we already have almost 1000 customers on the VMware cloud offering with IBM, so we're clearly seeing a strong uptake for that. And we clearly have seen the strength of our vCloud Air Network businesses as well which was up over 30% to this quarter, so we're seeing overall a real strength in that set of businesses as we have customer conversations.
I'll say overall we just have -- maybe we can't measure an acceleration yet but certainly a confidence in the partnership as we're expanding some of these strategic relationships, clearly gives us a renewed excitement about some of our largest and most strategic customer relationships. With regard to changing the view of the vSphere business at this point or compute business, we're not updating our overall guidance for that business at this point, but we're certainly pleased by the performance that we saw this quarter.
Operator
We will go next to Michael Turtis with Raymond James.
Michael Turits
I'd like to ask about compute. I know, John, you talked about compute plus management, but honestly compute standalone has been really strong.
What are you seeing there and how sustainable do you think that now positive growth in compute can be?
Pat Gelsinger
Overall as Zane said earlier, we're changing our long term view of that business having being flattish overall in a 10-ish% license bookings decline, for that business. We're very happy that we've over achieved against that guidance for three quarters this year, we do continue to see it as a springboard for all of our strategies and all of the products that we do reaching into that install base and NSX and vSAN and management really being able to leverage it.
But taken together, we're not changing that overall forecast at this point, but the strength of that platform clearly gives us a stronger position for all the things that we're doing across the portfolio.
Zane Rowe
Michael, I would just add that it's part of the success you've seen on vCAN, selling multiple products but obviously fortified by the compute element there that's helped the growth over the last number of quarters. So we're excited about that part of the business and as Pat mentions, clear validation of the platform
Operator
We will go next to Gregg Moskowitz with Cowen and Company.
Gregg Moskowitz
Question for Zane, your CapEx trended down again this quarter, do you still expect about $170 million for the full-year and generally speaking, how should we think about CapEx as a percentage of revenue going forward, particularly given more of a strategic pivot towards cross cloud architecture and the growing emphasis on cloud partnerships
Zane Rowe
You are right, we saw CapEx come down a little bit this quarter tied to SaaS platform development and some of the timing differences. I think I mentioned on the last call around, some of the facility projects we have going on as well as some of the IT projects, we expect that to build up a little bit more into the fourth quarter and beyond.
I would look at our historical trend and tell you we're relatively comfortable with CapEx coming back in line with historical trends based upon some of the platforms I estimate that we'll be doing as well but we're pretty comfortable with our forecast for the year.
Operator
We will go next to Brad Reback with Stifel.
Brad Reback
Zane, with the meaningful amount of capacity that you're going to pre purchase from AWS under this agreement, at what point should we expect it to have some sort impact on the gross margins, thanks.
Zane Rowe
Overall, Brad, we haven't described the specifics of the nature of the business relationship with AWS and exactly how that will work so I wouldn't be presumptive on pre purchase capacity or anything like that, with respect to the overall comment. It will be a service offering that will deliver, I think as we demonstrated with AWS partnership.
There is a taking advantage of their elastic, their metal service that their delivering will give us a very compelling offering to customers to be able to scale their capacity rapidly. It will be available as a capability broadly across the Amazon footprint, initially a limit to Geos and then expanding on a global basis over time.
And we do see it becoming as I said, a very rapid way for customers to take advantage of the full SDDC stack of software, so we see this as a great offering for customers acceleration but also a great business for us as well. Zane any other comments with respect to the financial?
No I think Pat touched on it, Brad? It's really the full stack and as you think about there's obviously the infrastructure element but the full stack that we're selling on that.
So we're pretty comfortable with that offering as well as the other hybrid cloud and SaaS offerings that we plan on producing over the next number of years as it becomes a bigger part of our total revenue.
Operator
We will go next to Abhey Lamba with Mizuho Securities.
Unidentified Analyst
This is Parthiv [ph] sitting in for Abhey, perhaps another one on the AWS partnership. In segmenting the market, do you expect particular adoption in the mid-market versus enterprise and with that in mind, how are you positioning the product in the channel?
Pat Gelsinger
What was the last piece of the question?
Unidentified Analyst
How are you positioning the product in the channel based on your target of mid-market versus enterprise
Pat Gelsinger
Yes so generally we expect, as we bring into the marketplace, beginning in the middle of next year that we'll actually be more enterprise oriented initially, as we focus on some of our largest and most strategic customers. We do expect it to be a broad market offering though overtime as we mature and build out the channel for it, but we're finding a lot of interest from some of our largest the most strategic enterprise customers as some of those first customers that will come onto the platform.
We will make it broadly available through our channel program as well as Amazon's channel program for their marketplace offerings, we also will engage with mutual partners for it as well, including some of our largest system integrator partners as well and they've shown quite a lot of interest in that capability over time. So broadly available through our channel, broadly available through the Amazon channel and that will ramp up as the offering matures in 2017 and into 2018
Paul Ziots
Thank you Abhey, last question please.
Operator
We will take that question from Shannon Cross with Cross Research.
Shannon Cross
Joe has commented that your company is a good vehicle for acquisitions and clearly you've done a good job with acquisitions over last couple of years. I'm curious as to what you're seeing in terms of the potential opportunities out there, some of maybe the valuation metrics that you look at when you look at opportunities and perhaps if anything has changed now that you're part of even a greater federation with the inclusion of Dell.
Thank you.
Pat Gelsinger
Well thank you and as you suggest, we see VMware as a good acquisition company. We have performed well on our acquisitions, they play key roles in our current product portfolio and we do believe that there are good opportunities for us to make acquisitions and as we describe, we really have two primary uses of our cash buybacks, for shareholder return and for acquisitions.
And we do see a range of opportunities across management, network, security and mobility as potential targets. And those are the areas that we have explored in the past and we do see those as good ones to augment and accelerate our strategy looking forward.
Beyond that, no additional M&A comments at this time, but we do see that there are good targets out there in those areas for us to consider.
Paul Ziots
Thank you Shannon. Before we conclude, I think Pat has a few final or a couple of final remarks
Pat Gelsinger
Yes, thank you Paul. Overall Q3 was another very good quarter for VMware highlighted by the performance of our diversified portfolio, we look forward to sharing more around the opportunities ahead as we implement our new cross cloud architecture and partnership agreements.
Thank you very much and have a great day
Operator
That does conclude today's call, thank you for your participation.