Summary Bullets:
• Broadcom’s planned acquisition of VMware raises fears of cost-cutting and price raises, plus integration issues.
• The harsh handling of Broadcom’s last two software acquisitions, CA Technology and Symantec, has VMware customers nervous.
Broadcom’s acquisition of VMware is set to close on October 30, 2023, provided Broadcom can get approval from Chinese officials. This long-winded, anticipated acquisition has been a bumpy ride so far to say the least. Broadcom’s handling of previous software acquisitions such as CA Technology (formerly Computer Associates) and Symantec was brutal for both companies and customers. Broadcom began a systemic plan of cutting staff, raising prices, and focusing on a select batch of customers that provide the most income opportunity. When Broadcom announced its intention to buy VMware, it wasn’t met with surprised pleasure, but with a gasp of shock.
The reality of Broadcom’s bid to buy VMware is curiously mixed. Clearly, VMware was going to be purchased by someone, at some point. Broadcom was a surprise. CA Technologies and Symantec have huge portfolios of legacy businesses, good businesses, but fairly staid businesses. The announcement of their intention to buy VMware brought with it the thought – is VMware a legacy software company? It’s an unfair thought, but merits discussion. Broadcom, for its part, seemed taken aback at the strong and mostly negative reaction to its announcement. Its attempts to portray the acquisition in a more positive light haven’t really worked. Broadcom claims that this acquisition will not be handled like CA or Symantec.
There have long been concerns about the licensing costs for VMware, which are often on a per-CPU basis, tiered by how many cores are on a given CPU. VMware is known as a pricey solution, but there has only been minimal competition to its core virtual machine business. Replication of features by competitors and the nature of technology to commoditize over time means that it is unlikely that VMware can continue with high pricing. Containers and the rise of Kubernetes has already begun to impact customer attitudes despite VMware’s own container offerings. Kubernetes itself is open source, with multiple places to get enterprise-grade support. This is putting pressure on VMware and it’s unclear how an acquisition by Broadcom impacts this concern unless it employs slash-and-burn tactics.
The pace of executive departure since the announcement is not a good sign either. Some churn is expected, but the number of key departures is alarming. VMware has also been experiencing an exodus of experienced staff as well. Broadcom, for its part, has been furiously spinning things, even planning on folding its entire software portfolio including CA and Symantec under the VMware banner. This isn’t as reassuring as Broadcom thinks, it will also introduce distractions for VMware executives and culture integration issues bringing in CA and Symantec.
It’s hard to see how Broadcom will make good on a $69 billion dollar price tag for VMware without drastic changes. Customers are nervous about the direction VMware might take, coupled with the possibility of increased VMware license costs and the rise of containers that are cheap or free and lots of competition. Clients can and should at least reevaluate their options, up to and including delaying any major VMware purchases until the acquisition shakes out.