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- Broadcom's $61 billion acquisition of VMware is expected to close this fall.
- Employees in VMware's end-user computing and cybersecurity units speculate they could get spun out.
- VMware had a small round of layoffs in January, and workers expect larger ones when the deal closes.
As Broadcom works to close its acquisition of VMware sometime later this year, some VMware employees say they're unsure about the future of the units they work in, if big layoffs will hit after the deal closes, or if customers will abandon them.
Broadcom and VMware announced the $61 billion deal last year and recently pushed back the deadline as it undergoes regulatory scrutiny. It's expected to close by the end of August or around Thanksgiving, VMware said in a recent SEC filing.
Insider spoke with one former and four current VMware employees about the changes they expect to face once they are owned by the chipmaker Broadcom. Their concerns can be summed up in a word: trepidation.
That's primarily because VMware is considered a "strange fit" for Broadcom, as Broadcom is, at its core, a hardware company while VMware is focused on software, one employee said.
Another employee said that staff members were excited about VMware spinning out as an independent company in 2021, but their excitement was tempered when news of the Broadcom deal came out.
"People are not at all happy. This is not a good acquisition," that employee said.
A VMware spokesperson said in a statement that after the deal closes, VMware customers will obtain "more choice and flexibility" in managing their IT needs, especially across multiple cloud-computing services. "This vision was a cornerstone of Broadcom's strategic rationale for pursuing the transaction." (See VMware's full statement below.)
The future of 2 of VMware's business units
Employees in the end-user-computing unit and the security unit — which includes the $2.1 billion acquisition of Carbon Black in 2019 — told Insider they were unsure if their units will be permanently folded into Broadcom, sold, or potentially spun out into stand-alone companies.
Carbon Black, a product that monitors cloud and on-premises tech for security threats, was supposed to be integrated into VMware's other flagship products within a year or two after VMware bought the company.
But it's "kind of been in limbo," one employee said, adding that Carbon Black's operations haven't really been absorbed into the greater company yet; it still has separate Salesforce and support accounts from the rest of the company. "I think it's safe to say that it has been a slower process than we anticipated," that employee said.
Since Broadcom already owns the security company Symantec, employees have been speculating that Broadcom could spin out Carbon Black or sell it, three employees said.
"To me the writing is on the wall. They might sell off Carbon Black because they have Symantec, which is a duplicate," one employee said.
Similarly, employees say they're unsure about the future of the end-user-computing unit, which makes products for cloud-based workstations and for managing desktops and mobile devices and has some overlap with products Broadcom already offers.
At a team meeting, Robert Ruelas, VMware's head of end-user computing, admitted EUC isn't important for Broadcom and dodged a question on if EUC was staying with VMware, a former employee said.
In addition, there could be a culture clash, as VMware is more remote-friendly — especially in this business unit that makes products specifically for mobile users — while Broadcom is requiring workers to return to the office.
"One of the things that bothers a lot of EUC, especially their salespeople, is how do you square that you're coming in here and talking about customers and users who are demanding to work remotely and work from home?" an employee said.
Workers expect layoffs after the deal closes
Employees say they are nervous about potential layoffs once the deal closes.
VMware had a small round of layoffs in January, two employees said, and it regularly conducts annual layoffs around the close of its fiscal year in January. But they said this year the layoffs were smaller, and VMware has not announced a big workforce cut. As of February, VMware employed over 38,000 people.
In response to questions about the small layoff, the VMware spokesperson said, "We also continue to monitor the current macroeconomic uncertainty and the industry dynamics, and we reassess our needs annually against our multi-cloud and SaaS transformation goals."
Workers expect more staff to be cut once the deal closes, particularly on teams where there would be overlap like HR, accounting, sales, and marketing, as is common with acquisitions of this size.
"Everyone is concerned," one employee said. "Tech companies have been laying off right and left. VMware hasn't announced anything like that. I think they haven't announced this because after the deal is closed, I'm sure they will conduct layoffs."
Employees have witnessed the company tightening its belt during this uncertain economy, saying that VMware has restricted travel budgets and slowed hiring to cut costs.
"Like all other companies, we are not immune to macroeconomic effects. We've been thoughtful about managing the budget as everyone else," VMware's chief technology officer, Kit Colbert, told Insider. "Our real direction on this is being thoughtful on budget and where we want to invest."
Employees say the company saw plenty of turnover last year after the deal was announced, but now workers unhappy with the situation are stymied by the tech industry's mass layoffs and tighter job market.
"It's a bit scary," one employee said. "Most of the people who wanted to leave before this acquisition goes through do not want to be part of Broadcom" but face "a tough market situation."
The VMware spokesperson also pointed out that the company is still hiring and, despite the speculation, hasn't formally announced cuts. "While this is naturally a time of transition for VMware, we're seeing more and more people joining and contributing at the company. At this point in time, we have not conducted and are not planning a broad company restructuring. We are committed to ongoing management of our workforce in alignment with our business priorities," the spokesperson said.
Executives leaving VMware
VMware has lost several key executives since the Broadcom deal was announced (including several defecting to VMware's archrival Nutanix). Analysts have said one of the biggest risks to the company after Broadcom takes command is a "brain drain."
The company announced Thursday that CFO Zane Rowe will leave the company June 9. Other departing executives, all of whom left late last year, include networking senior vice president, Tom Gillis; cloud senior vice president, Mark Lohmeyer; modern application platform business senior vice president, Ajay Patel; Carbon Black vice president of engineering, Kal De; global support senior vice president, Karen Egan; and head of cybersecurity strategy, Tom Kellermann.
Employees are also acutely aware that the current C-suite execs, including CEO Raghu Raghuram, could be eligible for large payouts of millions once the deal closes, including golden parachutes if they lose their jobs. For instance, Raghuram's full potential golden-parachute compensation totals $53 million, Broadcom disclosed in September. A VMware spokesperson noted that retention packages are "standard practice" in acquisitions.
"Even if he gets axed, if he's to be moved out of this merger, he will have a big package with him," one employee said of Raghuram.
Broadcom plans a $2 billion investment
Still, Broadcom says it has big plans for VMware. CEO Hock Tan is "very aligned with the VMware strategy," Colbert said. Tan recently announced that Broadcom would invest an incremental $2 billion each year, with half focused on research and development and the other half on VMware solutions. He also said he plans to further invest in VMware's partnerships.
"We're pretty excited about it. Budgets are tight so it would be great to get additional money to invest in highest-priority initiatives such as generative AI," Colbert said about the form of AI that can chat and create images and is currently the talk of the tech industry.
VMware is thinking about how it can enhance its products and operations with AI capabilities, such as using language models to ask questions to documents, adding chat interfaces, and detecting system anomalies, he added.
It's worth pointing out that text and document management is not VMware's bread-and-butter offering. VMware is known for its software and services that manage data-center hardware and cloud services.
But the spokesperson said VMware is thinking about how to add AI to existing products and use it internally as well.
"We are evaluating how we can deliver smarter solutions to our customers by bringing generative AI to service products that we already build," a VMware spokesperson said. "Additionally, we are looking at ways to harness AI to make our day-to-day operations better. We are also taking a holistic approach that will take into consideration the responsible and ethical use of AI."
Customers are uncertain, too
Still, such lofty plans are not being communicated to many VMware workers, these employees say. They say leadership has given few specifics on what VMware will look like once it's absorbed.
"There hasn't been much discussion of that other than positive affirmations that the Broadcom acquisition would be a good thing for us but not really elaborating on it," an employee said. "There hasn't been a lot of specifics in how we would look or operate."
Meanwhile, the pending deal is impacting VMware's relationship with customers, some of whom have expressed concerns about the deal, three employees say.
Some customers are particularly worried that Broadcom would raise VMware's product pricing, two employees said, although Tan addressed that in a November blog post by promising he wouldn't. "Nonetheless, I've continued to see questions in press reports about whether we intend to raise prices on VMware products. The answer is simple: No," he wrote.
Another concern is that sales representatives will focus more on short-term deals rather than long-term ones, another employee said.
"If you're a sales rep, and you don't know if you're going to be here in three months or four months, do you really want to spend six months working on a $2 million deal or spend the six months working on five to six $150,000 deals?" that employee said. "The longer the transition just drags on, it's terrible for those people."
VMware says Broadcom will give customers 'more choice'
Despite workers' concerns, the company says this deal will provide VMware with more resources to expand and grow. Here's the full statement sent to Insider when asked if the two companies are a fit and what employees and customers can expect once the merger closes.
The Broadcom acquisition of VMware continues to move forward as expected, including the regulatory review process taking place across multiple jurisdictions, and we continue to expect the deal to close in Broadcom's fiscal year 2023.
Following the close of the deal, the combined Broadcom and VMware will offer customers more choice and flexibility in how they run, manage and secure their workloads in this increasingly complex multi-cloud era. This vision was a cornerstone of Broadcom's strategic rationale for pursuing the transaction.
More recently, Broadcom CEO Hock Tan has committed greater resources to invest in innovation and services, helping VMware to compete, scale and win.
We appreciate the interest in the future of VMware and will continue to keep customers and partners updated as the deal moves forward.
Meanwhile, we continue to operate as a standalone company, supporting our customers and partners, driving innovation, and delivering across all of our businesses, in line with our business goals and our transformation to a subscription and SaaS business.
Our multi-cloud technology strategy remains the same – to help customers accelerate innovation and navigate multi-cloud complexity through a cloud smart approach.
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VMware Employees Grow More Concerned About Broadcom's Pending Deal - Business Insider
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