My first impression of the notion of Broadcom acquiring VMWare was negative.
I was most familiar with Broadcom’s acquisitions in the semiconductor space. The company had, and still has, a shrewd reputation for transforming its semi acquisitions and turning them into money-printing machines. Semi transformations require taking significant actions on product roadmaps and resources like laying off people. I’ll add that even in Broadcom’s software history, many questioned certain of the actions related to CA and Symantec transformations.
So, it would be natural for people to question this acquisition.
I have read the many scribes from Broadcom CEO Hock Tan circumnavigating the globe talking to the VMware ecosystem, but after personally talking with Tan and chatting with a few VMware partners and customers, I am wondering, is it time we start giving the acquisition a chance?
With most acquisitions, neither the acquirer nor the acquiree can say much publicly. There’s a “clean room” that is established to map out the future where executives are removed from its operational, day-to-day roles, and nothing, literally nothing, gets communicated outside that room. Legally, companies cannot openly work together until regulatory bodies OK the deal. If VMware and Broadcom were to get too close too soon, it would likely violate a litany of laws, including antitrust.
With this acquisition, Broadcom CEO Hock Tan has been very communicative, often indirectly responding to pointed criticism. That should be very positive for VMWare customers, its ecosystem, and Broadcom shareholders.
Hear me out.
Responding directly to the criticism
On CA and Symantec’s enterprise security business, Tan has been very clear that both companies had underinvested with product lines that were not ready for the cloud. I agree with this assessment. CA and Symantec’s offerings pre-acquisition were not compellingor prepared for the cloud future. Tan saw the opportunity to invest in areas where customers would find profitable dollars, and he shifted the company in that direction. If you were running Broadcom, would you have done things differently? Particularly with Symantec, if offerings weren’t improved and modernized, all its customers would have bailed. It lost a bit of share, but it wasn’t a mass exodus.
In semiconductors, Broadcom had a reputation for acquiring businesses, focusing R&D investment and raising prices. I had many conversations with infrastructure companies that said the prices of “that sole-sourced network switch” increased. I can argue both ways- was the OEM taking advantage of the previous company that was giving away its technology at too low a price, or did the OEM not make a long-term agreement to lock in prices, so too bad?
While Tan doesn’t categorically say he won’t raise prices ever, what CEO can ever make that commitment? He doesn’t even own the company yet, and I challenge my readers to show me a quote from any tech CEO, including VMware’s or Microsoft’s or AWS’s or RedHat’s, who stated it wouldn’t ever raise prices. Having run many multi-billion-dollar businesses, let’s be adults- do a long-term pricing agreement and move on.
Tan does say, “By delivering long-term value to customers and investing in improved, customer-focused R&D, we can innovate, scale, and offer better products without raising prices.” My translation? If we have a money-losing relationship together, which means I cannot invest in the right leadership products you want in the future, our arrangement needs to change. What tech business leader wouldn’t do this?
There was also a lot of chatter about Tanzu and the fear that it would be deprecated. Tan doesn’t mince words on this one. On Tanzu’s future, he says, “I see Tanzu as a strategic part of the VMware software portfolio, and it will remain that way as we move forward within Broadcom.” Any questions on this one?
I think we should be most confident on multi-cloud. Most of the communications I have seen from Tan are very clear that the world is multi-cloud, and that’s where the short- and long-term R&D spending will go. I think this is the big Broadcom opportunity.
The hybrid, multi-cloud opportunity
In a former life, my company supplied datacenter CPUs to the largest cloud hyperscaler on the planet. In Dot Com 1.0, I once managed, for a short time, the US’s largest x86 cloud datacenter. I’m not a public cloud denier.
Yet 10 years ago, when I was espousing the benefits of a “private” or “hybrid cloud,” I took some barbs as a “public cloud denier.” Haters going to hate. Today, even AWS, the most prominent, previous denier of private clouds, offers the widest variety of hybrid cloud options with Outposts, Wavelength, Local Zones, Snow, ECS, and EKS Anywhere. Now everybody agrees, including AWS, that the enterprise estate will comprise of infrastructure in the public cloud, on-prem, or colo private cloud that operates in a hybrid manner with the public cloud and, of course, on the edge.
The only thing some are questioning is multi-cloud. Well, some public cloud vendors are. Enterprises have spoken already. I have yet to meet with an F1000 CIO that doesn’t use multiple public clouds, be it AWS, Azure, Google, Oracle, or IBM Cloud. Every enterprise has a private cloud. Big enterprises are already multi-cloud, but it’s not very efficient. For each cloud, you need a different DevOpsInfoSec team and different processes per cloud. Each cloud has a different way of handling security, networking, and data. I am not expecting all the public cloud players to have magic interoperability APIs that solve this issue.
This is where VMware comes into the picture. In my years of assessment on hybrid, multi-cloud, I see VMware as potentially one of the big winners of the cloud era.
With the combination of VMware Cloud Foundation+, Tanzu, and Aria, VMware provides the app (container + VM), security, and networking layers to the multi-cloud puzzle, including, of course, on-prem, colo, and edge environments. This should mean consistent development, operations (with observability), and security across all clouds.
No doubt, the multi-cloud competition is fierce. Every public cloud provider wants you to go all-in on its cross-platform containers, networking, and security. The challenge there? For the largest public cloud providers, it’s not yet in their best interests to make multi-cloud easy or affordable. If I ran those operations, I would be doing the same thing.
IBM’s RedHat has the dominant container share and robust multi-cloud container service. Cisco offers a multi-cloud networking and security fabric with a very compelling observability capability. HPE has its own platform (and also works with VMware). Dell, of course, works closely with VMware and RedHat.
I know for sure the future is hybrid, multi-cloud, but it is not being done efficiently, and IT needs tools and services to simplify it and make it less costly. Tan has called multi-cloud, “the future of enterprise IT,” so I can’t imagine Broadcom will mess with VMware’s multi-cloud stack, which represents a gigantic business opportunity and what I believe is the growth driver for VMware.
I understand the questions about VMware’s acquisition by Broadcom. My quick take was negative. I get it. I think Broadcom initially misjudged the amount of communication it had to do with VMware’s customers, ecosystem, and channel partners. To its credit, Broadcom quickly responded and shared more information on what it intends to do and operate in the future, providing a lot more than what I have seen other tech companies communicate.
Like you, I still have questions. I’d like to know exactly how it plans to achieve the $8.5B EBITDA contribution. Still, the reality is that not all these questions can even be legally answered until and likely after transaction close. My instinct says there are many OPEX overlaps across CA, Symantec, and VMware. I also think there will need to be more than OPEX cuts to hit that number, as I’m not expecting an immediate, parabolic revenue surge.
What I do think we know are the following:
- Broadcom is committed to multi-cloud- this is why it bought VMware, and I cannot fathom the new owners messing that up. That would be dumb and contradicts the investment thesis.
- CA and Symantec had outdated technologies- VMware does not and Broadcom expects to approach the situation differently, as Tan stated, by “fostering an environment of growth and innovation and aligned with our customers’ priorities.”
- As for pricing- if you’re a profitable VMware customer or channel partner, I don’t think you should have concerns. If not? Well, businesses aren’t charities. Find a business relationship that works for both parties.
- Broadcom’s business model has worked well for a long time and has changed its MO for software.
Ultimately, I think it’s time to give the deal a chance and focus on what it will take to make it successful. The questions and criticisms have served their purpose, and it looks like Broadcom is listening.
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Moor Insights & Strategy founder, CEO, and Chief Analyst Patrick Moorhead is an investor in dMY Technology Group Inc. VI, Dreamium Labs, Groq, Luminar Technologies, MemryX, and Movand
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