Will Broadcom 'Milk' VMware SD-WAN Post-Merger?

A source inside Broadcom's newly reorganized software-defined edge division questioned the semiconductor and software vendor's commitment to the VMware SD-WAN and SASE business it recently acquired and the many telecom providers that leverage the technology.

Broadcom closed its massive acquisition of VMware on Nov. 22. The following week, news hit the wires of innumerable layoffs at various offices. As of Thursday afternoon, WARN notices in eight states add up to 2,867 impacted employees.

Media reports have already swirled about what Broadcom intends to do with VMware's end-user computing and Carbon Black cybersecurity units. But one source who hailed from VMware's edge networking business said heavy cuts within the division are a harbinger of things to come in Broadcom's SD-WAN and SASE strategy.

The source, who works in partner enablement with VMware and whose position will be terminated in the upcoming months, expressed concerns that market development fund (MDF) budgets for VMware's technology partners have already been cut. Those cuts, alongside reductions to partner enablement personnel, could hamper the go-to-market efforts of telcos that sell and manage VMware's SD-WAN and SASE platforms.

According to internal documents obtained by Channel Futures, telco service providers account for nearly 74% of VMware's SASE revenue over the last three years.

Related:Broadcom Layoffs Officially Above 2,800 Post-VMware Deal

“My feeling is they're just going to milk the revenue stream," the source said. "These companies won't automatically shut off, but they'll slowly start focusing on the other vendors because they're not getting the help anymore."

Many of the service providers have signed rolling contracts that renew each year. And many of them sell managed SD-WAN/SASE services feature other underlying hardware vendors in their line card.

“All of them are signed up to sell competitors. They're selling Cisco, Fortinet and Palo Alto. Many of them will only sell a vendor if the customer asks for it by name," the source, who asked to remain anonymous, said. "And if the customer asks them for a recommendation, they're going to go with the one that treats them the best – the best margins and the best marketing and sales support.”

A source at VMware's service provider partners, who also asked not to be named, said they're waiting to hear more from VMware about plans going forward. But in the meantime, the source said VMware has played a helpful role in SD-WAN sales enablement.

"They're more than willing to train the sales team, and they're more than willing to provide their sales engineering. If we're having a call with a customer and we think a VMware SD-WAN solution is going to work for them, they're more than willing to jump on a customer call and dovetail any of our stuff with the team and put together a plan for our customer," the person told Channel Futures.

Related:Fortinet's Q3 Earnings, Lowered Forecast Prompts Stock Price Plunge

An Analyst's Take on VMware SD-WAN

Vladmir Galabov, Omdia's research director of cloud and data center, and Roy Illsley, Omdia's chief analyst of IT operations, have been tracking VMware and its SD-WAN business. (Channel Futures and Omdia are both owned by Informa.)

Although Galabov said they observe SD-WAN "share loss" for VMware, they aren't jumping to negative conclusions.

"Roy and I have a singular perspective – it remains to be seen [what] Broadcom does with VMware but it’s not all doom and gloom," Galabov told Channel Futures. "VMware is expected to become the software division of Broadcom with an initial focus being placed on making all the software owned by Broadcom fit with VMware. This should take them all of 2024 to figure out."

Galabov noted "signs of customer concern stemming from the acquisition."

"According to Luigi Freguia, senior vice president and general manager of VMware EMEA, an uptick in revenue in 2022 was already driven by customers pulling forward purchases," Galabov said.

He added that Broadcom CEO Hock Tan has vowed more R&D spending in VMware, as well as commitment to its channel partners "for growth and reach."

"This should indicate that VMware should be more open than before to partner with communication service providers to deliver their SD-WAN/SASE as a managed service," Galabov said. "I think the concerns about dropped engagements and sales-leader attrition is valid. From what we see today, however, there is no sign that Broadcom’s intention is to defund VMware or reduce its portfolio."

Omdia's Vladimir Galabov

Realigning Under Broadcom

Broadcom announced four new divisions of VMware following the merger close.

The SD-WAN and SASE business will slot into the Software Defined Edge business, led by VeloCloud co-founder Sanjay Uppal.

"Joining our robust team of SASE, SD-WAN, telco and edge cloud software engineers and experts, we’re thrilled to share the news that we’ve integrated SASE and SD-WAN, edge compute, and telco sales, solutions engineering and carrier-grade support into our division to help accelerate your transformation projects," Uppal wrote in an email to employees on Nov. 27. "By unifying these important teams, we can provide a more holistic approach, keeping your goals, priorities and unique requirements at the forefront of our operations and strategies."

VMware purchased VeloCloud, Uppal's SD-WAN pureplay, in 2017, and has since added features to the platform in attempt to lead the burgeoning technology category known as secure access service edge (SASE). VMware scored in the "niche players" quadrant of Gartner's latest SASE Magic Quadrant.