Analysis Broadcom completed its acquisition of VMware one year ago, on November 22, 2023. Has it been a success?

On the financial scoreboard, Broadcom says the deal looks like a winner. Revenue is on the rise already – a sign that customers are buying into its strategy of no longer selling standalone support services to holders of perpetual licenses and instead offering per-core subscriptions to bundles of software and support. It leads with the VMware Cloud Foundation (VCF) private cloud stack, and points out that it's effectively lowered prices for the components of the bundle. Overall bills are higher – because they include support – but Broadcom asserts it delivers such strong ROI that customers end up ahead over time.

AT&T claims VMware by Broadcom offered it a 1,050 percent price rise [1]READ MORE

Broadcom has also claimed it's cut costs at VMware deeper and faster than it hoped. And its share price has bounced by a greater percentage than can be explained solely by the extra revenue the virtualization giant added to its bottom line.

Research firm The Cube [2]rates the takeover a success because while VMware customers have much to grumble about – especially cost increases – they're not migrating significant numbers of workloads to rivals. The firm's David Vellante thinks that's an acknowledgement that customers have come to believe Broadcom is right about its ability to lower long-term cloud costs.

Gartner VP analyst Michael Warrilow disagrees.

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In his experience, VMware customers are "all miserable" because they are "worse off as a result of the acquisition" on account of increases that have seen the cost of licensing their VMware estate typically increase by 200 to 500 percent.

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Warrilow told The Register that his clients report their VMware account teams are no longer available thanks to redundancies or re-orgs. "They [users] are not sure where to go for help," he noted – and they're only contacted by Broadcom when their software licenses are up for renewal. Even then, Broadcom is elusive and lets the clock run down so that customers have little time in which to negotiate before they lose entitlements.

While that dissatisfaction among customers and partners hasn't yet translated to migrations to VMware rivals, Warrilow thinks it's too soon to see evidence of such moves.

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"CIOs do not forget," he warned. "They will put up with the pain, but only for as long as they have to." Most hatch plans to procure in three-year cycles and many will sign with VMware for that period and use the time to plan an exit and/or a strategy to modernize their IT estates.

Plans vs delivery

Another way to consider whether Broadcom has succeeded is to match its promises to its deeds.

Ahead of the acquisition's closure, the voracious firm [7]promised two things: an extra billion dollars a year spent on R&D, and the same sum to help its partners "accelerate the deployment of VMware solutions through VMware and partner professional services."

[8]VMware reportedly probed by Japanese anti-monopoly cops

[9]Broadcom boss Hock Tan says public cloud gave IT departments PTSD

[10]CIO who dropped VMware 18 months ago now feeling thoroughly chuffed

[11]It looks a lot like VMware just lost a 24,000-VM customer

Broadcom may have spent the billion on R&D, but to date has little to show for it. VMware Cloud Foundation (VCF) version 5.2 – [12]announced in June and [13]released in October – improves integration between the components of the private cloud stack, but it didn't introduce major new innovations. And The Register understands the work done for this version was largely under way before Broadcom took over.

The next release of VCF, [14]version 9 , is currently in preview and is promised to make management of compute, storage, and networks even easier – thanks in part to the inclusion of [15]a unified SDK, shared APIs and single sign-on across the VMware portfolio.

If Broadcom has more remarkable innovations planned, it's not discussed them in public – other than its intentions to ensure VCF can handle AI workloads, a must-do in the current climate.

But Broadcom has not offered a timeframe for when VCF 9 will debut.

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That's problematic, according to Keith Townsend, president of consultancy The CTO Advisor, because while Broadcom has "brought both simplicity and a consistent vision to the [VMware] portfolio," it has done so disruptively. "With that disruption has been a blurring of trust," he observed. "Users are watching execution – Broadcom needs to execute to gain full user trust."

But Broadcom has already flubbed the important job of keeping its users secure, after a patch for critical bugs [17]didn’t fix the problem , meaning customers remain exposed.

Pre-acquisition VMware made the same mistake [18]in 2016 – long before Broadcom's severe job cuts that The Register knows impacted some engineering roles but which have never been detailed in terms of their impact on developer numbers.

Channel stumbles

On the channel front, Gartner's Warrilow hears of discontent. Broadcom won't let partners sell what customers want, and has made reselling less profitable and more complex. "They see the writing on the wall," he told The Register .

Townsend agrees.

Broadcom makes VMware Workstation and Fusion free for everyone [19]READ MORE

"Partners I've talked to are desperately looking at ways to replace VMware as a revenue source and therefore solution with customers," he reported.

VMware's channel has every right to be grumpy. As it changed VMware's business model, Broadcom [20]quickly reworked its channel program after initially requiring cloudy partners to license at least 3,500 cores. That level of commitment was too high for smaller operators, who feared they could not afford to continue offering VMware-powered services – potentially leaving customers facing a rapid and risky migration. The resulting two-tier partner structure – that sees smaller partners acquire licenses from bigger players – was implemented in haste, and did not go well.

Another issue that users and channel alike have complained about is the less-than-entirely-successful migration of VMware's support platform to Broadcom's own portal.

The Register still hears of VMware users struggling to access license keys. Support can also be spotty. Broadcom has offloaded some support services to its partners, but we hear some have struggled to put the right people in place to handle tricky customer queries.

U-turns

Broadcom has occasionally acknowledged difficulties at VMware.

After 100 days in charge, CEO Hock Tan conceded he's aware of [21]some unease among customers. And in October the firm [22]re-introduced the vSphere Enterprise Plus bundle – which sits between VCF and its smaller bundles. Doing so was surely an admission that it had left a gap in the market. Also in October, VMware decided to increase the storage capacity available under other licenses, addressing a quirk that saw costs rise sharply for those who rely on VMware's vSAN virtual storage product.

Rivals saw that storage situation as their best way to start discussions with unhappy VMware customers.

Veeam tests support for another VMware alternative: XCP-NG [23]READ MORE

Gartner's Warrilow predicts those discussions will intensify in coming months – partly because rivals have developed better alternatives to VMware. He cited Microsoft's Azure Local, a [24]distributed hybrid cloud product launched this week, as a strong VMware competitor and perhaps a sign Microsoft sees an opportunity.

HPE certainly does: it's created a virtualization solution and this week [25]decided to let it run on third-party hardware instead of confining it to its own GreenLake IT-as-a-service platform.

Warrilow doesn't think VMware rivals' efforts will deter Broadcom.

"The only beneficiaries from the acquisition are Broadcom shareholders," he told The Register . And that means Broadcom may buy more enterprise software developers.

"The question is what Broadcom is going to do next, and to whom," he said. "This formula is working for them in a big way."

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[1] https://www.theregister.com/2024/10/01/att_broadcom_filings_update/

[2] https://thecuberesearch.com/255-breaking-analysis-broadcoms-vmware-strategy-is-winning-despite-market-friction/

[3] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_software/virtualization&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=2&c=2Z0C4sVPLBgOPLAjC-o6NzgAAAFc&t=ct%3Dns%26unitnum%3D2%26raptor%3Dcondor%26pos%3Dtop%26test%3D0

[4] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_software/virtualization&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=4&c=44Z0C4sVPLBgOPLAjC-o6NzgAAAFc&t=ct%3Dns%26unitnum%3D4%26raptor%3Dfalcon%26pos%3Dmid%26test%3D0

[5] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_software/virtualization&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=3&c=33Z0C4sVPLBgOPLAjC-o6NzgAAAFc&t=ct%3Dns%26unitnum%3D3%26raptor%3Deagle%26pos%3Dmid%26test%3D0

[6] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_software/virtualization&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=4&c=44Z0C4sVPLBgOPLAjC-o6NzgAAAFc&t=ct%3Dns%26unitnum%3D4%26raptor%3Dfalcon%26pos%3Dmid%26test%3D0

[7] https://www.theregister.com/2023/05/04/broadcom_vmware_research_funds_pledge/

[8] https://www.theregister.com/2024/09/25/japan_vmware_broadcom_monopoly_investigation/

[9] https://www.theregister.com/2024/08/27/vmware_explore_hock_tan_keynote/

[10] https://www.theregister.com/2024/05/21/nutanix_vmware_migrations/

[11] https://www.theregister.com/2024/05/22/computershare_vm_migration_project/

[12] https://www.theregister.com/2024/06/25/vmware_cloud_foundation_update_broadcom_plan/

[13] https://docs.vmware.com/en/VMware-Cloud-Foundation/5.2/rn/vmware-cloud-foundation-52-release-notes/index.html

[14] https://www.theregister.com/2024/08/27/vmware_cloud_foundation_nine_preview/

[15] https://www.theregister.com/2024/08/26/vmware_vcf_unified_sdk/

[16] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_software/virtualization&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=3&c=33Z0C4sVPLBgOPLAjC-o6NzgAAAFc&t=ct%3Dns%26unitnum%3D3%26raptor%3Deagle%26pos%3Dmid%26test%3D0

[17] https://www.theregister.com/2024/10/22/vmware_rce_vcenter_bugs/

[18] https://www.theregister.com/2016/02/14/vmware_re_issues_patch/

[19] https://www.theregister.com/2024/11/14/vmware_workstation_free/

[20] https://www.theregister.com/2024/03/19/vmware_by_broadcom_white_label/

[21] https://www.theregister.com/2024/03/15/broadcom_100_days_of_vmware/

[22] https://www.theregister.com/2024/10/31/vmware_vsphere_foundation_standard_changes/

[23] https://www.theregister.com/2024/10/28/vmware_alternatives_veeam_gartner_xcpng/

[24] https://techcommunity.microsoft.com/blog/azurearcblog/introducing-azure-local-cloud-infrastructure-for-distributed-locations-enabled-b/4296017

[25] https://www.theregister.com/2024/11/20/hpe_vm_essentials_greenlake/

[26] https://whitepapers.theregister.com/