A few days ago, Broadcom announced its fiscal results for the quarter ending 2nd February. Although income for the VMware brands is no longer reported separately, it is still significant for a very important reason – we’ve now had a full yearly sales cycle since VMware products joined the Broadcom stable. A year in which many VMware customers have been confronted with the challenges of trading in their legacy perpetual licenses for renewed subscription bundles, amid ongoing VMware licensing changes. A year in which they have been left with uncertainty about what was to come, and likely, dissatisfaction at the prices they were expected to pay.
Broadcom’s financial success, at a cost to customers
However, what impact has it had on Broadcom’s bottom line? Their reported revenue of $14.2 billion for the quarter marked a 25% increase year on year, with net income at $5.5 billion, a remarkable rise of 315% on the same period in the previous year. Given Broadcom’s previous slow software revenue growth (3% in FY22 and 4% in FY23), it’s logical to infer that the sudden spike in revenue and profitability is caused by the acquisition of VMware, the shift to a subscription-based licensing model, and the introduction of bundled offerings at significantly higher prices.
The push towards VMware Cloud Foundation (VCF)
On the surface, you might suppose their product bundling and subscription strategy appears to be paying off. It’s probably too soon to say that, though, because timing is still very much an issue. Of the customers who renewed in the last year, 70% of them opted for the top of the range VMware Cloud Foundation bundle (according to The Register). But how many of those followed this path simply because they felt they had no choice? They may not have had sufficient time to fully evaluate their options or to consider a migration away from the VMware stack.
What’s next for Broadcom’s strategy and IT leaders?
The next couple of years will give us a much better indication of how well Broadcom’s strategy has paid off. Whilst we will no doubt see some customers stick with VMware, I suspect there will be an increase in organisations migrating to new platforms or accelerating their move to the cloud. When customers have had more time to think about their technology roadmaps and plan ahead, Broadcom’s aggressive sales tactics may yet come back to haunt them.
How can we help?
If you haven’t yet gone through a VMware renewal with Broadcom, you can download our whitepaper to explore your options and understand the impact of VMware licensing changes. Better yet, schedule a call with one of our experts at bedigital to see how we can help you to navigate this process and optimise your IT strategy.
