Broadcom’s Hock Tan Addresses ‘Unease’ Around VMware

All of the change in the wake of Broadcom’s purchase of VMware “has understandably created some unease among our customers and partners.”

That’s the word from Broadcom CEO Hock Tan this week in a blog assessing VMware’s first 100 days under the chipmaker’s ownership.

“Much work remains,” Tan noted, but he pointed to “substantial progress as we build the world’s leading infrastructure technology company.”

Certainly for shareholders, that progress has come to pass. Broadcom’s stock has soared more than 25% since closing the $61 billion VMware deal.

Broadcom's Hock Tan

For Tan, much of that increase ties to Broadcom’s scrutiny of VMware during the 18 months leading up to the transaction’s close, and the moves made in the immediate days after that event. He retained his firm stance on those strategies.

“We’ve acted decisively to increase customer value since we closed the acquisition,” Tan wrote.

Some of Those 'Decisive' Actions that Led to Now

To be sure, Broadcom did just that, shocking VMware partners and end users alike. First, it “simplified” the VMware portfolio by combining specific services into four SKUs and mandating they all sell on a subscription basis. A number of partners and buyers alike felt that Broadcom was forcing them into consuming — and, therefore, paying for — products they would not use.

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Then, just days before Christmas, the chipmaker terminated VMware’s channel programs and announced it would bring only invited partners into Broadcom Advantage. After much rumor and confusion spread amid Broadcom’s lack of communication, the company did at last ask 18,000 active VMware partners to join. Amid that, however, Broadcom took the top 2,000 VMware customers direct; partners who still want to work with the clients they brought to VMware must apply to do so. Broadcom will evaluate those requests on a case-by-case basis.

Meanwhile, some high-profile, partner-centric VMware executives, including Tracy-Ann Palmer, have left Broadcom. Others had already departed VMware before the Broadcom deal closed.

Tan: Changes Led to Understandable 'Unease'

Tan, whom Channel Futures named its Channel Influencer of the Year, acknowledged the upheaval. 

“[W]e recognize that this level of change has understandably created some unease among our customers and partners,” he wrote. “But all of these moves have been with the goals of innovating faster, meeting our customers’ needs more effectively and making it easier to do business with us. We also expect these changes to provide greater profitability and improved market opportunities for our partners.”

Plus, he added, Broadcom remains committed to its pledge to funnel $1 billion into innovation. To be sure, Broadcom did indeed funnel $1.4 billion into R&D in its first quarter, though it’s not entirely clear how much of that went solely to VMware projects.

Why Broadcom Made Its VMware Changes

Tan said that much of the reorganization around VMware stemmed from conversations with CIOs, CTOs, partners and “influencers” over the past 20 months. Three themes, he said, emerged on a consistent basis. Those were:

To those ends, VMware Cloud Foundation now serves as Broadcom’s platform “for innovation going forward,” Tan wrote. “It’s the solution that will help us address the business outcomes our customers have expressed to me directly as their most critical priorities.”

Tan said that VCF meets the needs of those aforementioned three themes. That’s because it features automation and “simplified operations,” as well as tools that make developers more productive.

“[W]e believe [VCF] delivers this at a lower cost of ownership for the average enterprise customer, compared with the ever-increasing cost of a public cloud,” Tan wrote. “To allow more customers to benefit from VCF, we’ve cut the previous subscription list price by half and increased support service levels.”

Broadcom Brought VMware 'Renewed Sense of Focus'

Of interest is that Broadcom squeezed more revenue out of VMware in those first 100 days by focusing on “upselling customers — particularly those who are already running their compute workloads with vSphere virtualization tools — to upgrade to VMware Cloud Foundation," as Tan told investors earlier this month during Broadcom’s fiscal first-quarter earnings call.

On the whole, in his March 14 blog, Tan defended the changes he has enacted around VMware.

“Like Broadcom, VMware has a remarkable history of innovation,” he said. “Many major brands and Fortune 500 companies run their mission-critical workloads on VMware software. What Broadcom has brought to the table is a renewed sense of focus.”