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Broadcom's acquire-and-axe history concerns VMware users

VMware users are taking a wait-and-see stance on the Broadcom acquisition, keeping their fingers crossed that Broadcom remains committed to investing in innovation.

Longtime VMware users and employees worry that the company's innovative technologies will land on the Broadcom Inc. chopping block when the acquisition is completed next year.

Late last month, Broadcom agreed to acquire VMware in a cash and stock deal worth approximately $61 billion. Broadcom CEO Hock Tan expressed optimism about the merged companies' chances for success, with plans to combine Broadcom's existing infrastructure and security software into VMware's portfolio.

VMware users are concerned that the company faces the same fate as others acquired by Broadcom in recent years, but they are taking a wait-and-see attitude.

Hock Tan is a shrewd business guy. He's very aware of the financial implications, both short and long term for his company with these acquisitions. Will he bleed it dry? I suppose that’s a possibility but it’s not clear yet.
Brian KirschIT architect, instructor with Milwaukee Area Technical College

"Hock Tan is a very shrewd business guy," said Brian Kirsch, an IT architect and instructor at Milwaukee Area Technical College. "He's aware of the financial implications, both short and long term, for his company with these acquisitions. Will he bleed it dry? I suppose that's a possibility, but it's not clear yet."

One VMware insider who regularly deals with multiple tech teams inside the company said VMware employees are on edge that Broadcom will keep the most profitable products but sell off others.

"Some employees are nervous because of the cuts they figure are coming," he said. "Others are concerned they won't invest in some products like NSX Intelligence that look like they have a promising future."

Broadcom's history: Acquire and axe

VMware employees and users have justification for concern. Just days after Broadcom concluded its $18.9 billion acquisition of CA Technologies in 2018, the company laid off 300 of the employees it inherited and said it would lay off another 2,000 of CA's 4,800 employees over time.

Months after the deal, Broadcom sold off CA's Veracode SaaS platform, which allows app dev teams to test applications for security holes. However, the company left CA's cash-generating mainframe software business relatively intact. Broadcom retained top CA executives to run the newly created Mainframe Division and Enterprise Software division.

Broadcom traveled a similar path after its $10.7 billion purchase of Symantec's enterprise software business in 2019. Less than six months later, the company sold off most of Symantec's Cyber Security Services business to Accenture. It held onto Symantec's more profitable security software products.

In May 2020, Broadcom sold off another piece of Symantec, this time the acquired company's enterprise consulting group, to HCL Technologies.

Upheaval may be ahead

While some users were somewhat surprised by the timing of the acquisition, they say they also understand why VMware may have agreed to the deal. One reason is larger corporate IT shops gravitate increasingly to SaaS-based software, which has eroded VMware's mindshare among IT pros. VMware has evolved its focus in recent years toward multi-cloud deployments and SaaS subscriptions. Meanwhile, all the major cloud providers -- Microsoft, AWS and Google -- have their own virtualization built into their cloud offerings.

Brian Kirsch, IT architect and instructor at Milwaukee Area Technical CollegeBrian Kirsch

"We took a lot of hardware out of the data center and virtualized everything, and then moved a lot of it, including our two biggest apps, out to the cloud," Kirsch said. "The footprint of our VMware environment has diminished as we move more into the SaaS space."

Another user, a CIO in charge of system architecture for a state university who requested anonymity, agrees with Kirsch. He noted that his company gravitated to Office 365 the past few years, perhaps the most popular SaaS-based offering in the market. Consequently, he was able to eliminate dozens of servers from his data center and saved on VMware's licensing fees.

"When you move your email to Office 365 you can cut down on email infrastructure, including on-prem servers," he said. "SaaS-based software in general has been taking a chunk out of VMware the last few years "

Microsoft underscored its commitment to the cloud in late 2020, saying that Exchange Server 2019 would be the last on-premises product it would deliver. It is switching to a subscription-based model.

VMware was late in moving to a subscription model a little over a year ago, later than most of its competitors. While the program has received good reviews from users, according to CEO Raghu Raghuram in an interview with TechTarget early this year, the company holds  firmly to its standard delivery method.

"Customers like the idea of somebody else managing and delivering software to them on a subscription basis," Raghuram said in that interview. "Having said that, there are still lots of customers that like the Capex model, too. You don't want to tell customers they have to buy a product only one way."

Broadcom's Tan is being more aggressive in his stance for subscription selling, promising investors in a recent call that VMware will make a "rapid transition from perpetual licenses to subscriptions," wholly replacing the buy-once =-and-use-forever approach.

While Tan acknowledges that such a transition might take multiple years, he might face some pushback from VMware users who would prefer to buy software on an as-needed basis.

"It's clear the trend of buying cloud-based apps through a subscription is gaining acceptance, but not everyone is going to like that if it gets forced on them," said one user, who requested anonymity.

VMware sells across a wide range of customers from large to small, but smaller VMware shops typically don't like getting locked into a particular product "with a three- or five-year plan like that," he said.

As Editor At Large with TechTarget's News Group, Ed Scannell is responsible for writing and reporting breaking news, news analysis and features focused on technology issues and trends affecting corporate IT professionals.

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