Broadcom’s pending acquisition of VMware has gained significant regulatory momentum over the past several months that could see the deal close by the end of October. But questions remain over how Broadcom will drive a return out of a business that it readily admits is losing market share to public cloud hyperscalers like Amazon Web Services (AWS), Microsoft Azure and Google Cloud.
The pending deal, if approved, will cost Broadcom a not-insubstantial $69 billion. That’s a significant sum for VMware that in its most recent quarterly earnings release posted a profit of $224 million.
Broadcom this week secured up to $30.5 billion in new loan commitments tied to the acquisition, which replaced a previously available $32 billion loan commitment it had secured when it first announced the acquisition. Broadcom also managed to post a $900 million increase in net income for its most recent fiscal quarter, which shows the vendor is boosting its pocketbook ahead of the deal.
In gaining approval from United Kingdom regulators for the deal, Broadcom supplied heavily redacted documents that laid out a dire operating picture for VMware that – coincidently – Broadcom claims it will be able to alleviate with the purchase.
“VMware has a strong core technology and operates in a proven and growing market for enterprise workloads,” the documents note. “But VMware’s own internal documents describe its market position as a [redacted]. Broadcom believes it can provide VMware with the scale and capabilities to reverse this trend.”
It later provides notes on VMware’s growth plans, adding that, “VMware has failed to do and is unable to achieve alone.”
VMware in its most recent earnings release did report a 6% year-over-year increase in revenues to $3.3 billion fueled by strong growth in its subscription and software-as-a-service (SaaS) businesses.
VMware vs. hyperscalers
Analysts noted that VMware remains a market driver, but that it has struggled to gain strong footing outside of its core private cloud focus.
“[VMware is] never going to go away. There’s always going to be a role for VMware virtualization technology,” Tracy Woo, senior analyst at Forrester Research, said in an interview with SDxCentral. “But it’s not going to be necessarily playing this outsized revenue engine for VMware that it has before.
“The moves that VMware has tried to establish themselves into the world, where public cloud is the predominant player, haven’t been incredibly meaningful. They have been able to carve out small niche roles for themselves, but they haven’t necessarily been able to be factored in as a huge player there.”
Those huge players are increasingly the hyperscalers that continue to dominate the public cloud space and have a growing presence in the private cloud arena.
A recent Flexera “State of the Cloud 2023” survey found Microsoft’s Azure Stack was the dominant private cloud technology currently being used by enterprises to run workloads. That was followed by AWS’s Outposts, Microsoft’s System Center and VMware’s vSphere/vCenter.
VMware has attempted to expand its influence into hybrid-cloud management using its Tanzu cloud-native platform, which helped push the vendor to a leadership position in that space according to Forrester’s ranking of hybrid-cloud management platforms.
Woo noted that VMware’s angle of being at the crux of hybrid-cloud management has indeed shown progress, but that could be impacted by hyperscalers increasing their focus on the private cloud space.
“If the hyperscalers start playing nice with each other and start really integrating and doing more than just quietly releasing these [on-premises platforms], VMware is dead in the water,” Woo said. “That’s [VMware’s] big play right now, and where they play probably the biggest role, the best complementary role among the public cloud providers, which is providing this level of visibility and seamless control as much as a cloud management tool can do.
“This is something that VMware is able to do probably better than any other player out there right now.”
Broadcom to overhang VMware Explore … again
Despite Broadcom’s glass-half-empty filings tied to VMware’s current operations, Broadcom has also touted robust investment plans. Broadcom CEO Hock Tan recently stated the company plans to invest $2 billion per year in VMware.
“Half of that investment has already been earmarked toward accelerating the deployment of VMware solutions to customers, enabling us to increase cloud competition by growing and strengthening VMware’s customer base and bringing value to the on-premises data center while advancing software-enabled workloads,” Tan wrote.
Analysts noted this intention is important for Broadcom to counter past acquisition-integration concerns.
“The article was a timely step to shift the narrative to Broadcom’s reputation for meeting the specific technology demands of its customers at the time of actual need,” Bola Rotibi, chief of enterprise research at CCS Insights, noted in a recent blog post. “This vision also puts focus on research and development, investing in products that grow in tandem with customers and that improve their capabilities.”
VMware is sure to highlight more of this opportunity at its upcoming Explore event. CEO Raghu Raghuram last year used the event to stress calm and time in tackling the then-still-fresh acquisition announcement, adding that it would be business as usual for VMware until the deal closes.
With that outcome now potentially weeks away from coming to fruition, the question could be whether business as usual remains a model for what VMware is going forward.
Will Broadcom's pending purchase overhang VMware Explore? - SDxCentral
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