Broadcom-VMware: Partners Face ‘Too Many Unknowns’
After months of delays, the chipmaker soon will have a stake in multicloud. What’s next for VMware partners?
![Broadcom-VMware questions remain upon closing Broadcom-VMware questions remain upon closing](https://eu-images.contentstack.com/v3/assets/blt10e444bce2d36aa8/bltbe175cb610be40a8/655cd0d2344e35040757bcbb/Question_Marks.jpg?width=700&auto=webp&quality=80&disable=upscale)
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Channel Futures: With all the time the industry has had to read/hear CEO Hock Tan's comments on Broadcom's approach to VMware and its channel, what are your thoughts now, perhaps compared to the initial acquisition announcement, about how Broadcom will treat VMware channel partners?
Techaisle’s Anurag Agrawal: "Tan has repeatedly said that Broadcom is committed to the channel and that partners will remain vital to Broadcom’s business. He has also promised to invest in the VMware partner program and provide partners with the tools and resources they need to be successful.
However, channel partners are doubtful of Tan’s assurances. They point out that Broadcom has a history of being aggressive and cost-cutting, and they fear Broadcom will squeeze out partners after the acquisition. They are also concerned about how Broadcom will transition VMware to an ARR/SaaS revenue model and its competition with cloud-native solutions.
Therefore, channel partners must be prepared for some changes after the acquisition. They should also develop a contingency plan if their relationship with Broadcom deteriorates. While channel partners may still have opportunities to work with Broadcom, they may also face more challenges and risks.”
On the next slide, Omdia’s Roy Illsley answers the same question.
Channel Futures: With all the time the industry has had to read/hear Hock Tan's comments on Broadcom's approach to VMware and its channel, what are your thoughts now, perhaps compared to the initial acquisition announcement, about how Broadcom will treat VMware channel partners?
Omdia’s Roy Illsley: "The channel is not my core area of research, but from my perspective this deal has too many unknowns. Tan’s statements are all very generic and reassuring, but he is hardly likely to say anything else, is he?
"VMware’s big value proposition is that it is Switzerland; it is in all the public clouds and runs on all the x86 servers. Therefore, its channel partners are not restricted; the Broadcom partner network is large, circa 35,000.
"This statement from the May 26, 2022, announcement says it all: 'Building upon our proven track record of successful M&A, this transaction combines our leading semiconductor and infrastructure software businesses with an iconic pioneer and innovator in enterprise software as we reimagine what we can deliver to customers as a leading infrastructure technology company.'
"They are an infrastructure technology company. The tone has changed in light of the regulators as this pointed to a world where VMware would run on Broadcom, and possibly only Broadcom (although no such statement was explicitly released).
"The channel were therefore concerned that this could impact their choice of platform on which to offer VMware; now that seems to have been appeased somewhat by the statement from the EU regulators: "Broadcom provided the European Commission with a technology access remedy that preserves interoperability, a core principle that would not have changed as a result of this transaction. Broadcom did this to fully address the concerns expressed by the European Commission, and Broadcom welcomes the Commission's decision to accept this access remedy."
Channel Futures: What concerns have partners shared with you over the deal? Have they talked with you about moving customers off VMware altogether (or even done so already)?
Techaisle’s Agrawal: "Here are some specific concerns that channel partners have expressed and Broadcom's potential actions that could impact channel partners:
Reduce partner margins.
Cut investment in the VMware partner program.
Favor its own sales team over channel partners.
Make it more difficult for smaller partners to do business with it.
It is important to note that these are just concerns, and there is no evidence to suggest that Broadcom will take any of these actions. However, it is essential for channel partners to be aware of these potential risks and to develop a contingency plan in case their relationship with Broadcom changes after the acquisition is completed.”
Illsley responds to a similar version of this question on the next slide.
Channel Futures: How many (if any) of your enterprise/SMB clients have voiced concerns over the deal and talked with you about moving off VMware altogether (or actually migrated off VMware)?
Omdia’s Illsley: "This was a hot topic in the early days, but as time has passed it has become less of a topic of debate. The key will be when the dust settles on this deal, if it goes through, and how the new company will invest and grow the product line. If, as many suspect, [Broadcom] will focus investment in Tanzu, and treat the rest as cash cows, then you will slowly see customers migrating to other platforms such as Red Hat.
"However, this is not a given and only time will tell if Broadcom will continue to invest in all the areas VMware has over the years.”
Hear more on that Tanzu topic from Techaisle’s Anurag on the next slide.
Channel Futures: What’s your take on how Broadcom might treat Tanzu once it owns VMware?
Techaisle’s Agrawal: "From the customer’s perspective, there is a growing preference for transitioning from a virtualized environment to a cloud-native one. Partners are keenly observing whether VMware Tanzu will be prioritized for investment by Broadcom or if they should divert their resources toward Red Hat’s OpenShift or container services offered by the three major hyperscalers.
Channel partners need to be prepared for changes after Broadcom acquires VMware. However, there will still be opportunities for channel partners to succeed."
Speaking of changes, Anurag talks on the next slide about what he thinks is headed partners’ way, more specifically, from Broadcom.
Channel Futures: How do you think this deal will impact the indirect channel overall in the coming, say, three to five years?
Techaisle’s Agrawal: “I believe Broadcom will likely change the VMware partner program after the acquisition is completed. However, I do not think that Broadcom will abandon the channel altogether. Broadcom needs partners to help it sell and support its products and services, and it would be foolish to cut off ties with its channel partners entirely.
"However, Broadcom is likely to become more selective about which partners it works with and focus on working with partners that can help Broadcom grow its business. This means that smaller partners may have a more difficult time doing business with Broadcom in the future.
"Before the acquisition, VMware was transitioning to an ARR/SaaS revenue model and persuading its partners to follow suit. While this model could potentially boost Broadcom’s market valuation, it remains to be seen how much Broadcom will invest in this transition.”
Get Illsley’s thoughts on this same question on the next slide.
Channel Futures: How do you think this deal will impact the indirect channel overall in the coming, say, three to five years?
Omdia’s Illsley: “Again, this is difficult, with the agreement on retaining VMware’s ability to operate anywhere, the impact will be on the conditions that Broadcom puts on its channel when selling VMware. It is not in Broadcom’s interest to destroy this business, but it could create conditions that are counterproductive for an independent channel partner if it is not careful. Therefore, the future is a guess until we know more, but I suspect some channel partners have contingency plans should business operating procedures force them to decide on their strategy for growth.”
Channel Futures: What would you like to say to sum up our conversation?
Techaisle’s Agrawal: “… Tan has continued reiterating his commitment to the channel but has also made some comments that have raised concerns among partners. For example, he has said that Broadcom will be ‘more selective’ about which partners it works with and that it will focus on working with partners that can help Broadcom grow its business. Tan has also said Broadcom is looking for ways to ‘streamline' its partner program and make it more efficient.
"It is still too early to say definitively how Broadcom will treat VMware channel partners after the acquisition is completed. However, Tan's comments suggest Broadcom is committed to the channel and looking for ways to make its partner program more efficient and focused.”
Read what Illsley has to say, on the next slide.
Channel Futures: What am I not asking about the Broadcom-VMware close and its effect on the indirect channel that I should be asking?
Omdia’s Illsley: “What you have not asked, and we do not know, is what are the plans for the different software products? Rumors persist that Horizon is not wanted and could be sold off post the completion.
"[Overall], this [acquisition] is a big deal and nobody spends that much money not to see a return. However, that will not happen by leaving things as they are. I suspect that VMware will have to operate like Broadcom currently operates, which is much leaner and flatter than VMware. It will also be interesting to see what happens to the long tail of software Broadcom has from previous acquisitions like CA Technologies.”
Channel Futures: What am I not asking about the Broadcom-VMware close and its effect on the indirect channel that I should be asking?
Omdia’s Illsley: “What you have not asked, and we do not know, is what are the plans for the different software products? Rumors persist that Horizon is not wanted and could be sold off post the completion.
"[Overall], this [acquisition] is a big deal and nobody spends that much money not to see a return. However, that will not happen by leaving things as they are. I suspect that VMware will have to operate like Broadcom currently operates, which is much leaner and flatter than VMware. It will also be interesting to see what happens to the long tail of software Broadcom has from previous acquisitions like CA Technologies.”
The behemoth, long drawn-out Broadcom-VMware deal finally will close on Nov. 22.
On Nov. 21, Broadcom said it had “received all regulatory approvals” and would tie up its $61 billion purchase of VMware in a move that adds cloud computing to the chipmaker’s business model.
The Broadcom-VMware deal was slated to close on Oct. 30, 17 months after its announcement. However, China, the last of the antitrust hurdles, delayed its expected blessing. That holdup came after U.S. President Joe Biden implemented tougher controls to make it harder for China to acquire advanced computer chips and the equipment to make them. The resulting lag in approvals from China was widely viewed as retaliation.
Without clarifying what had changed, or when, and without mentioning China, Broadcom on Nov. 21 issued a press release stating that the Broadcom-VMware transaction would close on Nov. 22.
A translated statement from China's State Administration for Market Regulation, though, shed some light on the country's thinking. Broadcom must concede to some "restrictive conditions," especially around storage adapters, Ethernet network cards, non-public cloud virtualization software and fiber channel adapters.
"The centralized entity has the motivation to eliminate or restrict competition" in those markets, China's SAMR said.
As such, Broadcom has apparently agreed to remedies, some of which remain confidential between the company and China. Others include removing barriers to customers easily buying and using the aforementioned product lines. Broadcom also must support interoperability measures. All of the conditions last for 10 years.
Broadcom had previously obtained a variety of regulatory rubber stamps — some after pushbacks and investigations — from authorities in countries and regions including Australia, Brazil, Canada, the U.K., the European Union, South Korea and more. The United States’ Federal Trade Commission did not present any opposition to the Broadcom-VMware union, despite initial predictions that it would.
With all that under its belt, Broadcom will be free to bring VMware into its fold. But what that means for channel partners remains somewhat of a mystery.
Broadcom-VMware: What Comes Next for VMware Partners?
Throughout 17 months of procedural delays, Broadcom CEO Hock Tan continued to post blogs and state at industry events that VMware channel partners have a home at his company. Partners have expressed different reactions to those assertions over the intervening months; many remain cautiously optimistic.
![Techaisle's Anurag Agrawal Techaisle's Anurag Agrawal](https://eu-images.contentstack.com/v3/assets/blt10e444bce2d36aa8/blte6af7641ff040ac6/6557a6cb72992e040a3d9ed4/Agrawal_Anurag_Techaisle_135x180_2023.jpg?width=130&auto=webp&quality=80&disable=upscale)
Techaisle's Anurag Agrawal
Channel Futures contacted a number of partners who previously have talked with us about Broadcom-VMware. However, none wanted to talk as the $61 billion transaction reaches its end — and a new beginning.
VMware employees, on the other hand, may face a tougher transition than their channel colleagues. Some are finally learning whether Broadcom is extending full-time or transitional job offers, or whether they’re being laid off. It’s been a rough road and a long, stressful wait for many.
As for what comes next, that’s up in the air. Channel Futures spoke with industry analysts — Techaisle's Anurag Agrawal and Omdia’s Roy Illsley) about what partners and their customers might be able to expect now that Broadcom-VMware is a done deal. (Omdia is owned by Informa, Channel Futures' parent company.)
As a hint, one of them says the combination arouses “too many unknowns.”
![Omdia's Roy Illsley Omdia's Roy Illsley](https://eu-images.contentstack.com/v3/assets/blt10e444bce2d36aa8/bltb533c3082ae466be/6524095a37a1655de119b5f4/Illsley-Roy_Omdia.jpg?width=130&auto=webp&quality=80&disable=upscale)
Omdia's Roy Illsley
In the slideshow above, find out what else Agrawal and Illsley have to say about Broadcom-VMware as the channel (and technology sector overall) has had more time to absorb its implications. They also discuss the feedback they’ve been fielding from partners and enterprises, share what they think Broadcom has in store for VMware’s channel program and more.
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