Broadcom Offloads ‘Non-Core’ VMware EUC to Private Equity Firm KKR

As promised, Broadcom is selling the VMware end-user computing (EUC) unit, which delivers remote access desktop technology under the Horizon and Workspace One brands.

The move comes three months after chipmaker Broadcom closed the long-pending $61 billion (plus $8 billion in debt) purchase of multicloud provider VMware.

Right after closing, CEO Hock Tan said his company would offload the VMware EUC unit and the security division, Carbon Black.

“[W]e ... do not want to be distracted by non-core focus. And VMware for us is about core," Tan said in December.

While Carbon Black remains on the market, private equity firm KKR is buying VMware EUC for about $4 billion, the companies said on Feb. 26. The deal should close this year after meeting customary conditions, including regulatory approvals.

KKR: VMware EUC Will Get New Partnerships, Investments

KKR intends to keep the VMware EUC unit as a standalone company run by existing management. Shankar Iyer, senior vice president and general manager, will remain as head of the team.

“The KKR team knows our industry well and is the ideal strategic partner to help us become a standalone company with an exclusive focus on delivering powerful tools for the digital workspace,” Iyer said.

VMware's Shankar Iyer

KKR says it pledges to expand the research and development around the VMware EUC unit, pursue “new strategic partnerships” and “focus on customer relationships through significant investments across go-to-market functions.” That includes “long-term investments in resourcing for customer success, partner support and an expanded, dedicated sales team,” KKR said.

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On top of that, KKR will make VMware EUC employees owners in the group’s success. The model reflects the private-equity mindset on which Broadcom, even though it’s publicly traded, also operates (hence the recent uproar around the partner program terminations and changes, and product bundling). KKR said that, since 2011, its portfolio companies have awarded billions of dollars in total equity value to more than 60,000 non-senior-management employees.

In the meantime, though, Iyer wrote in a Feb. 26 blog that business will proceed as usual. But, he added that he is looking forward to the next iteration of VMware EUC. 

“This news happens to coincide with reaching my 10-year anniversary with the EUC division, and as I reflect, I can say there’s never been a better time to take what we’ve built and give it the dedicated focus it deserves,” Iyer wrote. “With continued and enhanced investments in our business, technology, and global ecosystem, we are confident that the pending acquisition will be a powerful benefit for our customers and partners. I’m excited about what comes next.”

Related:Broadcom Invites 18,000 ‘Active’ VMware Resellers Into Partner Program

Potential Channel, Customer Implications

The sale of the VMware EUC group to a private equity firm could stir even more concern within the channel around commitment to small and medium business customers.

“The emphasis on larger enterprise accounts could lead to a realignment of resources and support, potentially deprioritizing SMB customers,” wrote Mark Zarella, vice president of revenue and partnerships at ComputerVault. “This may impact their access to critical virtualization technologies and support.”

Of course, ComputerVault serves as a direct competitor to the VMware EUC group and stands to gain from any fallout. That has been the case for many VMware rivals in the wake of the Broadcom acquisition close, and they’ve wasted no time capitalizing on the chaos. Indeed, the activity has come in their favor. Seventy percent of VMware partners have told Canalys (a Channel Futures sister company) that they “urgently want to dump Broadcom” after the decisions enacted by the chipmaker.

Of interest is that the sale of the VMware EUC division reflects a very similar action on the part of competitor Citrix two years ago. Private equity interest indicates that the remote desktop access market, even though the technology is neither new nor sexy, is still profitable.

“The virtual desktop space is mature but still growing and a very reliable income source,” wrote Michael Richtberg, a tech industry advisor, on LinkedIn.

John Park, partner at KKR, agreed.

“EUC is a leader within large, high-growth categories and demand for the business’s marquee offerings continues to grow as the workplace and the needs at the front-line evolve rapidly,” Park said.

For Broadcom, offloading the VMware EUC follows the company’s historic trajectory of streamlining products and operations, including implementing layoffs and cost cuts, in strategies overseen by CEO Tan. Broadcom has cemented a reputation for enacting hard-core measures to increase shareholder value. To aid in that goal, the company compensates employees with restricted stock units so they have a vested interest in financial outcomes.