The acquisition of VMware by Broadcom, announced in May 2022, after a very convoluted process of national signoff, was finally completed on the 22nd of November 2023, over 18 months later, with the last holdout country, China, finally acquiescing. It has been one of the most controversial and, potentially, one of the most impactful deals in the history of the IT industry. As a long-time observer and analyst of VMware and its ecosystem, I have followed the developments and reactions with great interest and growing concern. In this opinion piece, I will share my views on the expected fallout of this deal, potential benefits, if any, and the many pitfalls to the customers and partners of the now defunct VMware; this is based on my research and insights from other sources such as Forbes, Gartner, etc.
Will VMware by Broadcom rise like a phoenix from the flame of the acquisition crucible, or will it sink to the bottom of the ocean like the Titanic after hitting an Iceberg called Broadcom? These are the questions that I hope to answer.
First of all, let me state that overall, I was not a fan of this deal. I believe it was a bad move for VMware and Broadcom and their customers, partners, and employees. That said, I was neither a fan of the VMware/EMC2 or the EMC2/Dell deal. However, the optics were very different with those deals. The then EMC2 CEO, Joe Tucci, stated that post-acquisition VMware was to operate as a standalone business within their portfolio of companies that included the likes of RSA, Pivotal, VCE and Virtustream in an operating model that ran more like a federation of like-minded friends than the usual direct ownership model. When Dell bought EMC/VMware, they purchased it for EMC, not VMware or the other companies; they quickly divested RSA and effectively rolled Pivotal into VMware and divested it into a publicly traded company again to reduce their debt position; they kept Virtustream for some reason, with the final member VCE evaporating in 2016 to become the converged platform division of Dell, where it still breaths, albeit on life support. Anyhow, enough with the trip down memory lane and back to focus.
Why am I not a fan?
Although we can lament the short lived freedom of VMware, the company its freedom was to be short-lived. Why? The landscape had changed; enterprises were migrating from self-owned, self-managed data centers and building their services in cloud providers like AWS and Azure. This put VMware in a difficult position, the company that had, in reality, started the Cloud revolution with their product vCloud Air had been overtaken and dominated by a newcomer “AWS” and their perpetual foe “Microsoft” with their cloud product “Azure”.
VMware was still seen as a leader in enterprise software and a real paradigm changer, especially in cloud computing and virtualization; it had a strong vision and culture of innovation, but its star was no longer in the ascendant. However, this is a main indicator of my worry regarding this acquisition, VMware was also seen as one of the world’s best workplaces. The company had one of the highest Glassdoor ratings of any company. People loved working for and with VMware. The vast majority of their employees were at the top of their game, their sense of community was world-renowned, and their benefits packages world-renowned. Everybody loved their flexible approach to working. They were a leader in “work anywhere”. One of the advantages of having globally diverse teams was that their ability to work and interact remotely had been honed to perfection before the pandemic.
Broadcom, in their favour, is seen as a leader in hardware, especially in semiconductors and networking, however, it is their focus on cost-cutting and consolidation that causes my main concern. Broadcom’s business perspective stems from its manufacturing base, and this is reflected in its culture. There will be more about this later; but for the moment, it is sufficient to say that these two companies have very different strategies, values and cultures, and I doubt that they can integrate well or benefit from each other’s strengths; I remember well the integration of HP technical services and EDS.
The effect on the technology landscape
I have worried about how this deal would sit with VMware’s core customer base. It spans all business from the one-man shops that use VMware Workstation and VMware Fusion, right though to massive Multinational conglomerates AT&T who use VMware Teclo’s suite of products and finance giants line HSBC, Bank of America and all sized between from federal and local governmental departments and other critical national industries.
The merger of these two technology giants raises many questions, hence the extended period between the announcement and nuptials due to the requirement for aquisence from many national auditors and regulators. What I found particularly worrying was the lack of any clear information from Broadcom about the post-acquisition business position, which led to a large amount of FUD (fear, uncertainty, and doubt); however, that said, it is only FUD if it is not true, and some of the post-acquisition announcements are firming up my core worries.
VMware is being refocused to concentrate on its core competencies, or to be more precise focusing on the “higher-value software stack” and a move to subscription-based usage. According to Broadcoms CEO Hock Tan during his December the 7th earnings call with analysts “We are now refocusing VMware on its core business of creating private and hybrid cloud environments among large enterprises globally and divesting non-core assets,” Yes that is correct, VMware is being spilt up. The divestiture of Carbon Black and the EUC division has already been announced; meaning that Broadcom perceives no value in Carbon Black’s next-generation endpoint security products over Symantec’s offerings.
They also do not consider the edge to be core to their view. This shows a very datacenter centric perception of business. This blinkered approach is worrying. Further, Broadcom have already announced a massive refactoring of the sales teams, refocusing them on selling VCF and VCF only; this may sound like a great idea: simplifying the number of SKUs offered to the customer, however, the unit price increases dramatically, and you will end up with products “effectively” being shelfware; paid for but unused or an over-engineered solution that costs the earth to serve up your virtual machines and containers, anybody remembers CA Unicenter and IBM TSM anybody? This does not look like a strategy to drive long term growth, but a cynical approach to pull as much value from the company before it implodes form the vacuum caused by customers dumping their VMware platforms with the speed of a millennials attention span whilst watching TicTok.
Next, I think this deal will have negative consequences for the market and the industry. VMware has been a key player in driving the transformation of IT infrastructure, enabling customers to adopt hybrid cloud, multi-cloud, edge computing and other emerging technologies. VMware has also been a catalyst for collaboration and competition among its partners, such as Dell, IBM, AWS, Microsoft, etc., creating a vibrant and diverse ecosystem. Broadcom’s acquisition of VMware will likely disrupt this dynamic, as Broadcom will have less incentive to invest in innovation or to cooperate with other vendors. Broadcom may also use its market power to impose its own products or standards on customers or partners, reducing their choice and flexibility. Unlike when EMC2 took over VMware their has been no indication of a flexible approach to doing business. VMware never became VMware by EMC2 or VMware by Dell, it is telling that Broadcom is trumpeting their ownership.
The effect on the people.
But to me the most worrying aspect for me is the effect on VMware’s culture. I thought that this deal would have negative consequences for the people involved. VMware was a great place to work for many talented and passionate professionals who have contributed to its success and growth. The company had a very forward-thinking approach to work. They lived and breathed the Martini concept, “anytime, anywhere.” Meaning your work could be done anywhere, yes there were times when you needed to be on a customer site for weeks at end, but then you would be working from home; why did VMware go down this route so quickly, it is simple really. They were a global dispersed company, their teams spaned continents, this allowed a follow the Sun approach to business, but more importantly allowed and fostered a flexible approach to work. If your team is based in Singapore, Mumbai, Sofia, London, and Palo Alto, finding a convenient time to have a team chat is difficult. When I worked with VMware I never once went into their UK head office, I was either at home or on a customer site; this was normal. It allowed VMware’s staff to move away from expensive areas like San Jose, New York, London, Sydney etc and move to cheaper areas of the country and still be productive. They had concepts like Epic days, these are company wide days off the allow people to recharge, these days were not considered a part of your PTO. They allowed people to move into other parts of the business to learn new skills but still be paid the rate of your normal role. I could go on. One of the first acts that Broadcom did, was revoke the work from home policy. EVERYBODY has to commute to their local office and work core hours; how this will affect team cohesion remains to be seen; but I am not hopeful.
Broadcom is known for a ruthless approach to acquisitions, slashing jobs, budgets and projects to achieve short-term financial goals. According to Ars Technica, Broadcom has already cut at least 2,800 VMware US-based jobs following the acquisition, which is about 10% of its workforce; this is before the tide rolls out across Europe, where employees have greater employment protections. This is not only a loss for VMware, but also for the industry and the society at large.
I think that you can probably get the feeling that I believe that the acquisition of VMware by Broadcom is terrible news and will have a negative impact for both companies, but mainly VMware; Broadcom is already consolidating its power base within VMware, the previous CEO of VMware has gone, Broadcom execs are appearing in positions of power at VMware.
I was hoping that Broadcom would prove me wrong by respecting VMware’s identity and legacy, by supporting its innovation and vision, by collaborating with its ecosystem and by valuing its people; but it appears that VMware’s corporate culture is already being eroded, homeworking has been banned, and many people have lost their jobs and divisions that have been considered core for years are effectively on the scrap heap; remember VMware invented VDI. I believe that based on Broadcom’s current track record of acquisitions and the public statements have already been made and actioned; this is just the start, it seems that the preditor Leopard Broadcom cannot change its spots.