As is known, the semiconductor heavyweight Broadcom virtualization pioneer VMware wants to acquire for 61 billion dollars. Given Broadcom’s not-so-great track record from previous acquisitions (CA Technologies in 2018 and Symantec in 2019), VMware’s enterprise customers are understandably concerned.
“After the CA and Symantec acquisitions, Broadcom raised prices, lowered support levels and stopped investing in innovation,” recalls Tracy Woo, senior analyst at Forrester. “VMware customers would be wise to have an exit plan,” she warns. IDC analyst Stephen Elliot sees it differently: “I think customers should intensify their relationship with the provider and strive for a strategic partnership.”
The deal isn’t expected to officially close until late 2023, so companies still have some time before making decisions.
Both Broadcom and VMware executives are aware of the above concerns and pledge that this acquisition agreement will be different. That’s what Broadcom says for example in a blog post: “We approach the planning phase of the transaction process after closing the transaction with an open mind, building on the lessons learned from our previous acquisitions of CA and Symantec Enterprise.”
In a recent town hall meeting, VMware president Sumit Dhawan also tried to allay the concerns of the more than 35,000 VMware employees: “You should not assume that the events of the Symantec and CA acquisitions will repeat. such plans, at least we’ve only heard the opposite so far,” said the manager.
And Broadcom also emphasizes how much they value VMware’s technologies and the company’s strong relationships with enterprise customers, hyperscalers, systems integrators and channel partners: “We don’t want to change that. Rather, we want to expand these relationships.” blessing to VMware customers, giving them greater choice and flexibility to build, run, manage, integrate and secure traditional and modern applications.
One possible red flag is Broadcom’s stated goal of growing VMware’s annual profits from $4.7 billion to $8.5 billion in three years. According to Broadcom, this will be achieved by “eliminating” duplication of general and administrative functions in human resources, finance, legal, assets and IT. Forrester analyst Woo is skeptical: “Getting rid of duplicate back-office functions isn’t enough to achieve the target of nearly $4 billion in additional profits. The question is, where else is saving?” The fear: Broadcom could also cut costs in other areas, such as customer support or research and development.
Realizing Broadcom’s vision of a full-scale mainframe-to-edge computing powerhouse requires investing not only in high-value projects, but also in VMware initiatives that are just starting to gain traction, such as Tanzu, its container management software. It is possible that the expanded product portfolio, existing business dependencies and combined sales channels will enable VMware in its new form to realize its rapid growth spurt without staff reduction, support or innovation savings. Yet doubling profits within three years remains an aggressive target.
Add to that the fact that Broadcom has traditionally increased prices, cut operating budgets and scaled back support after acquisitions. A record that is loud a survey by 451 Research existing VMware customers involved. The survey of more than 300 technology companies was conducted after the announcement of the acquisition. One result: While many tech executives believe there could actually be synergies between Broadcom and VMware, 40 percent of those surveyed are negative about the planned acquisition. Respondents’ main concern was that Broadcom could slow VMware’s innovation power.
However, several factors suggest that Broadcom is not following the pattern of previous acquisitions. For starters, the $61 billion acquisition of VMware is the largest in the company’s history to date. That puts pressure on Broadcom to make VMware a growing, sustainable company instead of pumping it out like CA and Symantec did. Another factor: VMware’s strong partner ecosystem. Broadcom must build relationships with channel partners or much of VMware’s value can quickly evaporate.
The timing of the acquisition also matters: VMware has shifted from a provider of server virtualization solutions to containers, multi-cloud offerings and hyperscaler products. So a roadmap that integrates Broadcom’s existing network, security and AIOps capabilities into the VMware portfolio builds on a transition already underway. An important difference in this acquisition is that VMware’s products do not compete with those of Broadcom. “There isn’t much overlap between the portfolios of these two companies,” confirms IDC analyst Elliot. “For Broadcom, everything VMware brings to the table is value. VMware technologies are already ingrained in most organizations and the company’s customer relationships are generally well respected. VMware is very well positioned,” he concludes. “Broadcom understands that and wants to build on that.”
VMware’s unique position as a virtualization pioneer with a huge, loyal customer base sets this deal apart from previous Broadcom acquisitions, which the expert said had more overlap and took place in more standardized market sectors. “You make such a deal to transform your business, drive growth and build better relationships with customers. Broadcom’s view is that there is much to learn from VMware that will impact Broadcom’s future.”
In addition, if Broadcom splits VMware into its components, world-class engineers, support specialists, and sales and marketing professionals will leave the company. VMware’s Chief People Officer Betsy Sutter doesn’t see this scenario: “The acquisition could open up new opportunities for both employees and customers,” the manager said at a VMware meeting. The fact is, however, that some of VMware’s top executives have already left the company. Competitor recruiters would have already made their rounds — and there are many rumors of an impending churn at VMware. “The acquisition is expected to close at the end of 2023, so it is far from complete. Internal turmoil at VMware could cause problems,” analyzes Ms. Woo van Forrester.
I’ve spoken to a few at VMW and they don’t like the uncertainty of whether their jobs will exist after the takeover and are leaving now or have left now.
— Mick Pollard ?? (@aussieunix) September 17, 2022
JEP They know Broadcom is firing aggressively after a takeover and they are securing their future while they can control it
— Simon Sharwood (@ssharwood) September 17, 2022
One indication that Broadcom is serious about investing in VMware is the chip maker’s announcement that it plans to rename the Broadcom Software Group to VMware after the transaction closes. “If Broadcom and VMware can join forces, customers will not only benefit from the portfolio integration, but the synergies could also lead to new business models,” said Elliot.
One of the more interesting aspects of Broadcom’s acquisition of VMware is that Broadcom Software Group will rebrand and operate as VMware.
This means that VMware will become a mainframe company.
I find the irony here very funny. pic.twitter.com/63ZoUHvx8k
— Greg Ferro – A Simplicitarian (@etherealmind) June 2, 2022
Broadcom’s vision is to become a software powerhouse that enterprise customers can count on – be it for mainframe, networking, security, virtualization or edge computing. VMware has already supported multi-cloud and container initiatives that contribute to this vision – for example Project North Pole or Tanzu Kubernetes. Broadcom’s existing software suite, which includes AIOps, cybersecurity and automation solutions, will now be tightly integrated with VMware solutions for cloud infrastructure and modern applications.
“Because both of these portfolios are so large and important to enterprise production environments, the acquisition creates an opportunity to build stronger customer relationships. The breadth of the portfolio is of great value, especially when they are able to bring these diverse products together into a cohesive whole,” says Elliot.
Many enterprise customers rely heavily on VMware products for cloud and application infrastructure. In many cases, decoupling would not be so easy. Still, it doesn’t hurt to map out an exit strategy in case your worst fears surrounding the Broadcom-VMware deal come true. However, for most VMware customers, waiting is probably the wisest course of action.
IDC Representative Elliot recommends VMware customers focus on product planning, future roadmaps, and better communications to build a more strategic business partnership. This approach is probably only suitable for very large companies. After previous acquisitions of CA and Symantec, Broadcom has left smaller customers out in the cold.
Still, Broadcom Software Group is not only rebranding as VMware, but the chipmaker is also paying a premium for VMware: When the deal was announced, the $61 billion price represented a 44 percent premium over the closing price of VMware common stock. It would be an odd move by Broadcom to pay that premium for a company that wants to break it down into its component parts.
Whatever path Broadcom chooses for VMware, existing customers should keep their options open. (FM)
This post is based on an article from our US sister publication Network World.