The fundamental product strategy Broadcom has initiated involves reducing the number of individual products customers can purchase, packaging those bespoke offerings into a few core bundles and forcing customers to take the full package. This means customers must evaluate which workloads can truly benefit from all that functionality and migrate the less valuable workloads off VMware.
The following additional commentary is noteworthy:
Key points:
- Last quarter Broadcom indicated it has cut its VMware spending run rate by approximately $700 million post-acquisition, with potential further reductions.
- Employee layoffs thus far have been in the thousands, but reports indicate they could exceed 10,000, demonstrating the aggressive cost-cutting measures in place.
- Major focus on subscriptions, where VMware was slower than many software companies to move from perpetual to annual recurring revenue licenses.
- VMware revenue grew sequentially last quarter from $2.1 billion to $2.7 billion as customers report net contract value increases from 25% to 500% and in some cases even higher.
- Broadcom has narrowed its R&D focus and simplified its a la carte menu of offerings by consolidating SKUs from thousands to just a few core products.
- Despite our earlier expectations that Broadcom would sell End User Computing or EUC (which it has done), Carbon Black and Tanzu, it has decided to retain Carbon Black (perhaps not fetching its desired price tag) and Tanzu, signaling a need to focus on modern application stacks.
Bottom line: Broadcom is executing its plan with precision, focusing on efficiency, revenue growth and maintaining high operating margins, setting the stage for a more streamlined and profitable VMware. The impact to customers has been to rationalize their VMware portfolios, keeping only those workloads on VMware that can take advantage of the full stack and moving noncore workloads off VMware to avoid paying for unnecessary features. Many partners are disaffected. Having built years of VMware expertise, they’ve had to shift their business models to identify new revenue streams that are not reliant on VMware and do so quickly.
Impact on VMware’s community and ecosystem
The swift and sweeping changes implemented by Broadcom have sent shockwaves through VMware’s longstanding user community. Once one of the most vibrant ecosystems in the tech industry, the VMware customer and partner base is now facing a mandate to change as Broadcom reshapes the company’s focus.
Key points:
- Broadcom’s rapid execution post-acquisition has been surgical.
- The move by Broadcom to focus on the top customers, go direct and consolidate SKUs has disrupted established partner and customer models.
- Despite concerns, Broadcom’s commitment to Tanzu and modern application stacks has been well-received by some parts of the community, especially those that don’t want to endure risky migrations.
Bottom line: Broadcom’s changes, while disruptive, are aligned with its strategy of focusing on high-value customers and modernizing VMware’s offerings, though this has come at the cost of community and partner ecosystem stability. Moreover, VMware is behind in the artificial intelligence race. Its advantage is it’s a leading on-premises offering but its AI innovation and tooling must close the gap with public cloud providers.
Posted from: https://siliconangle.com/2024/08/18/assessing-broadcom-vmware-eight-months/