Dive Brief:
- Broadcom trimmed the VMware portfolio down from over 8,000 products to four core offerings since finalizing its $61 billion acquisition of the virtualization software company in November, Broadcom President and CEO Hock Tan said Wednesday, during the company’s Q2 2024 earnings call.
- The company is also weaning VMware away from perpetual licenses. “We are making good progress in transitioning all VMware products to a subscription licensing model,” Tan said. “In VMware, we're very slow compared to a lot of other guys — Microsoft, Salesforce, Oracle — who have already been pretty much in subscription.”
- As the changes go into effect, Broadcom aims to cut $1 billion from VMware’s quarterly spending, from $2.3 billion pre-acquisition to $1.3 billion in Q4 of this fiscal year, Tan said, adding it will likely stabilize at $1.2 billion post-acquisition.
Dive Insight:
Enterprise customers have been rocked by abrupt and major changes in VMware licensing and product bundling practices since the acquisition. But many are too dependent on the company’s products and services to change vendors, according to a recent CloudBolt report.
“We have a whole Microsoft Teams channel that is just VMware alternatives because we get asked about it so much,” Tracy Woo, principal analyst at Forrester, told CIO Dive.
“Even if you wanted to cobble together a bunch of different vendors’ software to replicate the VMware stack, you really can't.” Woo said. “Customers need to find some really painful way to be able to extricate from VMware, which is why there's lots of blood in the water.”
Broadcom has focused on renewing deals with VMware’s biggest customers, analysts told CIO Dive. These are large, complex, highly regulated and risk averse companies that are unwilling to move, Woo said.
The company is making progress with that strategy. Since the acquisition, Broadcom has closed deals with nearly 3,000 of VMware’s largest 10,000 customers, enabling them to “build a self-service virtual private cloud on-prem,” Tan said.
“The big selling point we have, as I indicated, is the fact that we're not just trying to keep customers kind of stuck on just server or compute virtualization,” Tan said. “That's a great product, great technology, but that's been out for 20 years.”
The VMware product portfolio will now focus on the vSphere full-stack virtualization platform, which bundles networking, storage, operation and management in private cloud, Tan said.
VMware revenue has nevertheless taken a post-merger hit.
VMware contributed $2.7 billion in revenue to Broadcom's infrastructure software segment for the three-month period ending May 5. The software company reported $3.28 billion in revenue during the same period last year.
Tan put a brighter spin on the number, noting VMware revenues grew by $600 million quarter over quarter, up from $2.1 billion in Q1 2024. Broadcom expects VMware revenues to “accelerate toward a $4 billion per quarter run rate,” Tan said.
