Broadcom’s acquisition of VMware is set to close on 30 October 2023, provided Broadcom can get approval from Chinese officials. This long-anticipated acquisition has been a bumpy ride so far to say the least. Broadcom’s handling of CA Technology (formerly Computer Associates) and Symantec was brutal for both companies being acquired but also brutal for customers of those companies. Broadcom began a systemic plan of cutting staff, raising prices, and focusing on a select batch of customers that provide the most income opportunities. When Broadcom announced its intention to buy VMware, it wasn’t met with surprised pleasure, but with a gasp of shock.
VMware is central to many enterprises today. The company perfected PC machine virtualisation and revolutionised enterprise data centres. Add in its other products, including storage software and networking, and the impact of the company is enormous. Of course, the rise of cloud and in particular, the rise of containers, are threats to VMware’s core customer base. The company has spent considerably on R&D efforts to remain relevant, adapting to the cloud and creating essentially seamless operations with containers and the popular Kubernetes container management system. VMware’s educational efforts and work with developers have yielded legions of professionals who are inclined to use VMware’s products.
However, 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. Containers and the rise of Kubernetes have begun to change that. Containers, which only contain the parts of an OS that are needed to run the application and the application itself are much more efficient than full-machine virtualisation. Kubernetes itself is open source, with multiple places to get enterprise-grade support. This is putting pressure on VMware – while clients can use containers with the familiar VMware interfaces, they still have to pay.
With Broadcom’s announcement that it intends to acquire VMware, the pace of executive departure that had started after VMware separated from Dell, has accelerated. VMware has also been suffering an exodus of experienced staff. Broadcom, for its part, has been furiously spinning things, even planning on folding its entire software portfolio 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 believe Broadcom’s reassurances, not because they are untrustworthy, but because it’s hard to see how Broadcom will make good on a $69bn price tag for VMware without drastic changes. Customers are nervous about the direction VMware might take, coupled with the possibility of increased VMware licence costs. The rise of containers that are cheap or free means that clients are beginning to consider looking elsewhere for less expensive solutions.
Enterprise customers should wait on any non-critical VMware purchases until the acquisition closes. There is no guarantee that the Chinese government will approve the acquisition and it remains to be seen if Broadcom can navigate the cost reduction and profit improvement it will need to justify the purchase. Enterprises should consider all strategic options but hold off on any changes until it becomes clear how VMware will come out the other side of the acquisition.
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