Broadcom must reassure customers and partners after its offer to VMware

The formalization of Broadcom’s takeover bid for VMware for $ 61 billion paves the way for the emergence of a new IT infrastructure giant. After being approved by two boards of directors, the transaction must still receive regulatory green lights and leave 40 days for another buyer to exceed the bid. However, Broadcom’s management hopes to complete it in its next financial year, which ends on October 29, 2023.

After taking control of Broadcom in 2015, billionaire CEO Hock Tan continued his strategy with mega-acquisitions at CA Technologies and Symantec’s Enterprise division. VMware is the jewel in the crown of this new software empire, which will take its name. The new Broadcom is expected to weigh in at $ 40 billion in pro-format revenue, nearly half of it (49%) from software. He expects VMware to grow its Ebitda by 8.5 billion dollars over 3 years.

In addition to being accretive for Broadcom, the transaction should guarantee a large portion of recurring revenue from the software, making it independent of the effects of the semiconductor market cycle. A good point for investors but it doesn’t answer the questions of everyone involved in the VMware ecosystem.

Criticized for the unremarkable track record in terms of innovation of previous acquisitions, Broadcom executives sought to convince themselves that the operation was not just financial. ” Many of you have a perception of Broadcom as focused on maximizing financial metrics, rather than maximizing change. This is incorrect because Broadcom has a history showing that it performs the same as “, they wrote an internal letter to employees, which was consulted by our colleagues from the Tribune.

“The transaction will combine leading semiconductor and software infrastructure companies with an iconic pioneer and innovator in enterprise software, as we think about what we can offer customers as a technology company. Leading infrastructure»argues Hock Tan in a press release.

As such, the company makes a triple commitment of providing a broad platform of critical infrastructure solutions that can respond to the most complex IT needs; provide more choice and flexibility to build, operate, manage, connect, and protect large -scale applications; and to integrate the two cultures focused on engineering and innovation.

“Combining our strengths and talented team with Broadcom’s existing enterprise software portfolio, all hosted under the VMware brand, creates an impressive software business”added Raghu Raghuram, CEO of VMware. “Together, we will bring more choice, value and innovation to customers, allowing them to thrive in an increasingly complex multi-cloud era. »

Michael Dell, who remains VMware’s largest shareholder with 40.2% of the remaining shares, gave his support to the proposed merger, explaining “Already at Broadcom, VMware will be in a better position to provide valuable and innovative solutions to better companies. »

But given WMware’s core presence in on -premises and cloud infrastructures, any change will have serious consequences for customers and partners. Raghu Raghuram is right to point that out “VMware has changed the IT landscape over the past 24 years”. What will happen to its strategic partnerships when finding synergies with other Broadcom assets must be quickly prioritized?

Customers will also understand changes to an offer that are critical to their infrastructure and how its marketing will improve. Analysts from Gartner and Forrester have indicated that Broadcom may be tempted to raise prices, as it did after previous acquisitions.

“We will focus on one transition, and a quick transition, from perpetual license to subscription”said Tom Krause, president of Broadcom’s software division, adding that he intended the software “recurring income of approximately 100%”.

A prospect that is already causing twitter to some VMware distribution partners. “They couldn’t come in and immediately changed the way we work with our clients. We just can’t tolerate that. “warning of the leader of one of them to our colleagues at CRN.

In a broader way, partners are waiting to see the venue and the attention Broadcom will bring to the WMware channel. At this point, Tom Krause wants to be reassured: “There is an opportunity to use a two-tier channel and distribution model, with channel partners and major value-added resellers”, he said in an interview with analysts. The stakes are justified at this time not to make some mistakes again and know how to adapt its methods.

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