VMware SaaS Revenue Grows as Broadcom Software Revenue Stays Put

Quarterly earnings from VMware and Broadcom show the former growing its software business at a healthy clip, while its prospective acquirer’s software growth sits flat.

As the two companies await regulatory approval for their $61 billion merger, VMware and Broadcom unveiled their earnings within a day of one another. Both companies reported revenue growth in their previous quarter, but their respective software mixes varied significantly. Although neither company is driving the majority of its revenue through software subscription, VMware is seeing a significant rise. Broadcom, on the other hand, reported a slip in the Brocade business it acquired nearly seven years ago.

VMware Earnings

VMware earned $3.7 billion in its fourth quarter, which grew 5% from a year prior. It drove a total of $13.4 billion for the completed fiscal year, up from $12.9 billion in the previous year. VMware’s fiscal year ended on Feb. 3, 2023.

It ultimately drove profit of $494 million for the quarter and $1.3 billion for the previous 12 months. However, profit declined $586 million in the fourth quarter of 2022.

Moreover, VMware reported growth in its software-as-a-service business, which accounted for 32% of total revenue for the quarter. The $1.2 billion in fourth quarter subscription/SaaS revenue equated to a 36% year-over-year increase, according to VMware. SaaS and subscriptions also represented 30% of VMware’s revenue in fiscal year 2023.

VMware’s Raghu Raghuram

“We are very pleased with our fiscal year 2023 performance. These results reflect consistent customer appetite for our multicloud offerings and our ability to help companies with a ‘cloud smart’ approach,” VMware CEO Raghu Raghuram said. “We look forward to the merger with Broadcom, expected to close in Broadcom’s current fiscal year, as our combined solutions will enable customers greater choice and flexibility to build, run, manage, connect and protect their applications at scale.”

Broadcom Earnings

Broadcom drove $8.9 billion in revenue in its first quarter. That represente 16% year-over-year growth. The company reported an adjusted EBITDA of $5.7 billion for the first quarter. It also set a second quarter guidance of approximately $8.7 billion.

$7.1 billion of Broadcom’s revenue – or 80% – came from semiconductor solutions while $1.8 billion came from infrastructure software. While semiconductor revenue grew 21% year-over-year, infrastructure software declined 1%. CEO Hock Tan did note, however, that “core software” grew 5% year-over-year.

Broadcom’s Hock Tan

On the other hand, Broadcom’s Brocade business declined. Tan cited “lumpiness in enterprise consumption” for SAN storage.

It’s worth noting that Broadcom has pointed to VMware’s software practice as a key reason for the acquisition.

Tan said Broadcom is seeing lead times in its semiconductor business “largely at 50 weeks.”

“From our view, infrastructure spending continues to be up particularly in service providers, even as hyperscale and enterprise sustain,” Tan told analysts. “Spending in technology for infrastructure has been strong, showing double-digit growth for nine consecutive quarters.”

Regulatory Challenges

Reuters reported last week that the European Commission will issue a statement of objection to Broadcom’s acquisition of VMware. The antitrust watchdog had already opened an investigation into potential anticompetitive practice that could emerge from the merger. Although a statement of objection does not equate to a rejection, Broadcom would need to meet new conditions to ensure it isn’t shutting down interoperability between VMware’s software and other hardware providers.