Broadcom to divest VMware's end-user computing and Carbon Black units
Warns of $1.3 billion charge for cutting Virtzilla's costs, rapid shift to subs and sales of the whole vStack rather than individual pieces
Updated Broadcom CEO Hock Tan has announced his intention to divest VMware's end-user computing and Carbon Black units, and signalled a rapid shift to subscription licenses of bigger software bundles.
Speaking on Broadcom's Q4 2023 earnings call, Tan told investors "We are now refocusing VMware on its core business of creating private and hybrid cloud environments among large enterprises globally and divesting non-core assets."
"Our strategy going forward is to enable global enterprises to run apps across datacenters and public clouds by consuming VMware's high value software stack," Tan explained, adding: "To attract and retain workloads we are investing in microservices tools."
Tan named VMware's end-user computing portfolio – which comprises desktop virtualization, application publishing, and mobile device management – as one asset to be divested. The Carbon Black security software unit is also on the way out, after on November 27 announcing it had become an independent Broadcom business unit.
"We're now going to invest and focus our sales and R&D on those core areas of VMware Cloud Foundation," Tan continued. "And to us, end-user computing, Carbon Black, good assets as they may be, we prefer now to divest them. We'll find good homes for them because there are a lot of very interested parties who are more than happy to take those assets."
The Broadcom boss promised to be "very, very thoughtful about where we put those assets eventually, simply because the customers of many of these two assets … are also the same customers to the VMware Cloud Foundation.”
He’s right: VMware's end user compute wares are often deployed to run on the virtualization pioneer's ESXi hypervisor, and sometimes rely on it. They won't easily be disentangled.
But Tan doesn't want customers to buy bits and pieces of VMware's portfolio. He intends to have more of them buy Cloud Foundation – which includes compute, storage and network virtualization, plus multi-cloud management and automation.
Tan described VMware as having practiced "very loose component sales in the past, particularly on compute only." Changing to sales of Cloud Foundation will mean customers pay more – propelling VMware revenue towards Broadcom’s goal of adding $8.5 billion of pro forma EBITDA within three years of the deal closing. The CEO predicted the shift to Cloud Foundation sales alone should see that number in sight by the end of Broadcom's 2024 financial year.
CFO Kristen Spears foreshadowed another change for VMware customers, in the form of a push to subscriptions when they renew their licenses.
"We are also converting an install base of licenses that is over 60 percent perpetual today to one that will be mostly subscription by the end of fiscal 2024," she announced on the earnings call.
Spears also revealed that by the end of FY '24, VMware spending will shrink to $1.4 billion per quarter – down 40 percent from a year ago.
Some of those savings will clearly come from job cuts. Public filings suggest VMware has axed over 2,000 jobs in the US. The Register has made several requests to Broadcom to detail those job cuts, and how they will change the experience of working with VMware, but it has not responded. In its Form 8-K, Broadcom revealed it "expects to take charges of approximately $1.3 billion through fiscal year 2025 for the implementation of cost reduction activities."
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Tan's remarks about Broadcom's plan to focus on global enterprises reflect the playbook the voracious conglomerate followed after the acquisitions of CA and Symantec, which both saw product development focus on the needs of larger customers. Smaller users – and the partners who serve them – both reported indifference from Broadcom.
Tan said VMware is different because "… we're selling a product of the present and of the future. It is a growth product to be able to create a virtualized cloud environment in your own datacenter on-prem for any global company."
Broadcom forecast VMware will generate $12 billion of revenue for eleven months of its next financial year, excluding $2 billion for end-user computing and Carbon Black.
The biz reported $9.3 billion revenue for Q4 – up four percent year on year, and an eight percent annual revenue increase to $35.8 billion. Net income was essentially steady for the year and quarter.
FY 2024 revenue was forecast to reach $50 billion, helped by the addition of VMware, secular increases in demand for semiconductors, and some help from the AI boom.
+COMMENT The Register struggles to reconcile the many references on Broadcom's earnings call to VMware Cloud Foundation as an ideal product for global enterprises, the plan to de-emphasize "loose" sales of unbundled products, and past insistence that smaller VMware customers will continue to get the innovation and service they need.
Broadcom is currently offering those customers little succour or information – and they're openly fearful and contemplating alternatives. ®