Harlan Sur: One quick housekeeping item question. So, even off the lower revenue base starting in fiscal ‘24 for VMware, is the team still targeting $8.5 billion-plus of EBITDA in three years? And then for my main question, Hock. As you mentioned, right, one of the fastest growing workloads in accelerated compute is accelerated compute and generative AI. And all of these workloads are increasing at an exponential rate. You talked about the benefits to your silicon franchise. But given the significant performance requirements of these workloads, right, training, inference, it appears that more of the near-term adoption of running these workloads is on bare metal, GPU, TPU, accelerated servers. So, how is the team exploiting a software-defined data center solutions via either cloud foundations or Tanzu to try to help customers focus on AI sort of drive better utilization, better economics, faster deployments on this very fast growing part of the market?
Hock Tan: Well, as you may be aware, in the last VM Explore in Las Vegas, VMware came out and announced in partnership with NVIDIA, the VMware Private AI Cloud Foundation. Another way of describing it is, the VMware Cloud Foundation Software Stack, the whole VCF stack runs NVIDIA coder, runs the NVIDIA GPU. That is the partnership. So, if you’re an enterprise, it’s a very easy step to get into gen AI analytics because the data center that you as an enterprise own on-prem that runs VCF will by default run the NVIDIA GPU software stack as well. Another way to put it, it virtualizes the NVIDIA GPU. That’s the VMware software stack as well. So it’s a very strong attraction in our — from our perspective to, in fact, accelerate thinking of a lot of enterprise to adopting the whole VCF site.
It’s simply because not only does it virtualize the data centers and make your data on-prem data center much more resilient, easier to manage, lower cost to manage, it has the added benefit, a big attraction this is of being able to right away start running AI workloads.
Harlan Sur: And then, just on my first question, are you guys still targeting $8.5 billion of EBITDA in three years on VMware?
Hock Tan: As Kirsten indicated, as we exit fiscal ‘24, we are practically at a run rate of $8.5 billion EBITDA.
Operator: One moment for our next question. And that will come from the line of Stacy Rasgon with Bernstein.
Stacy Rasgon: Kirsten, along that line, I was wondering if you’re going to do 60% EBITDA margin for the Company for the full year, how should we think about the beginning and exit rates on EBITDA margin relative to that full year total? And I guess, aligned with that, I think I heard you say you — that VMware OpEx would be down 40% exiting the year versus the entry trade. I’m actually kind of surprised it’s not down more. Maybe that’s the reinvestment. But is that $1.4 billion per quarter for VMware, that’s the right exit rate going for VMware OpEx? And should we sort of go off of that or what?
Kirsten Spears: That’s VMware spending. So that’s total spending.
Hock Tan: Yes, it will be. But, let me tell you, Stacy, you’re missing the biggest point. We are on a — as I indicated to an earlier question by Vivek, I think, our revenue during this process, even 12 months, 4 quarters, is on the growth trajectory, just because of the way the math works. As we sell more and is on revenue, and we recognize revenue on a ratable basis, our revenue on a quarterly basis is on a growth trajectory. That will keep running and will keep running beyond 2024. But 2024 by itself won’t be on a revenue trajectory that goes up very rapidly. So what you have think about picture is, is a revenue trajectory in ‘24 that is expanding or growing while the expense — operating expense, total spend because of reduction of transition expenses is declining. And that’s why we are telling you that by the end of — as we exit fiscal ‘24, we pretty much get to the guidance we gave you at the beginning of when we announced this deal.
Stacy Rasgon: So what’s the total company EBITDA margin, say, exiting the year then, just to level set?
Hock Tan: Well, that’s a total — we will get pretty close to where we are supposed to, before we started this whole exercise.
Stacy Rasgon: What was that 65%? I can’t remember.
Hock Tan: It’s somewhere between 60% and 65%. How does that sound, Stacy?
Stacy Rasgon: I mean you did say 65% on it. I think I recall you saying you were going to run VMware at 65%. So I guess, 65% is the right exit rate?
Hock Tan: At steady state, you’re right. At steady state, we’ll get to pretty close to 65% on VMware.
Operator: Thank you. One moment for our next question. And that will come from the line of Timothy Arcuri with UBS.
Timothy Arcuri: Hock, in the language for the approvals from China, they noted some restrictive conditions and there were some protections around some sensitive information from your competitors. Can you detail what these are? And does this change your view on the synergies you can drive, either cost or more importantly, revenue? Thanks.
Hock Tan: No. I think those conditions are pretty well laid out in the website of the relevant authorities. I frankly don’t think that it’s very appropriate for me to sit here and repeat all those conditions again. It’s right on the website, and that’s what it is.
Timothy Arcuri: Okay. And it doesn’t make you think any differently about the synergies that you can drive from the business?
Hock Tan: No.
