Higher VMware Prices Buoy Broadcom Revenue: ‘We Are Focused on Upselling Customers’

Those higher VMware prices are translating exactly as Broadcom intends: into billions of dollars in revenue.

Broadcom's Hock Tan

“This is simply a result of our strategy with VMware,” Broadcom CEO Hock Tan told analysts late last week during his company’s fiscal first-quarter earnings call. 

He was referring to the decisions Broadcom immediately made around VMware products and pricing after closing the controversial $61 billion acquisition — despite declaring in late 2022 that Broadcom would not raise VMware prices. Even so, the chipmaker in late 2023 repositioned the VMware portfolio into four, more expensive, SKU bundles: VMware Cloud Foundation, vSphere Foundation, vSphere Standard and vSphere Essentials Plus.

"We are focused on upselling customers — particularly those who are already running their compute workloads with vSphere virtualization tools — to upgrade to VMware Cloud Foundation," he added, per a transcript from The Motley Fool.

Much of the demand for VCF, regardless of any higher VMware prices, ties to AI adoption, which VMware made easier last year when it teamed with industry giant Nvidia.

“[W]e are seeing this capability drive strong demand for VCF from enterprises seeking to run their growing AI workloads on-prem,” Tan said. 

To those points, Tan expects “strong bookings at VMware” to “accelerate revenue growth through the rest of fiscal 2024.” 

Related:Broadcom-VMware Saga Update: Nutanix Wins, Carbon Black Sale, Hock Tan Pay

In fact, Tan expects Broadcom to see $20 billion in software revenue for the full year. Already in the first quarter, after just 10.5 weeks on the books, higher VMware prices helped generate $2.1 billion in sales. That contributed to a total of $4.6 billion for Broadcom’s software revenue, marking a 156% year-on-year increase, Tan said.

Other Outtakes from Broadcom’s VMware-Related Earnings

In other VMware-related news at Broadcom, Tan appears to have put his company’s R&D money where he promised. During the 18-month acquisition process, Tan said Broadcom would immediately, upon the deal’s close, “step up” VMware research and development. 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.

Also of interest is that Tan confirmed Broadcom no longer is trying to offload Carbon Black. When the security division, which he initially considered “non-core” did not recently sell alongside the End User Computing group, speculation ran wild that Broadcom would fold the brand into Symantec. Tan now says that’s exactly what will happen.

“We have decided to retain the Carbon Black business and merge Carbon Black with Symantec to form the enterprise security group,” Tan told analysts. “The impact on revenue and profitability is not significant.”

What is significant, however, is Broadcom’s attention to VMware’s top buyers. The company’s focus “is on the largest, I would say, 2,000 strategic customers,” Tan said.

That observation likely will come as no shock to channel partners, who now must vie for a place in continuing to work with those end users. In late December, when terminating the VMware partner program, Broadcom told partners it would take the top 2,000 customers direct. It later added a caveat that the partners who sold and maintained those deals may apply to remain involved. Broadcom will decide on a case-by-case basis.

Overall, Tan expressed pleasure with VMware’s initial revenue results for Broadcom.

The “star [of] this show is the accelerating bookings and backlog we are accumulating on VMware,” he said.