Towards increasing VMware licenses after the acquisition of Broadcom

Analysts say Broadcom’s acquisition of VMware could lead to more 5G initiatives, software -defined networking and multicloud management, but also higher prices.

Broadcom’s proposed acquisition of VMware could lead to innovative technologies that will be of interest to telecommunications companies and operators. The question is whether Broadcom will allow VMware to continue developing tools for 5G, software-defined networking (SDN), and other technologies. On Thursday, the semiconductor supplier confirmed it had reached an agreement to acquire VMware in a deal worth approximately $ 61 billion in stock and cash, subject to closing conditions, including regulatory and shareholder approval. . The merger agreement includes a go-shop clause that gives VMware the ability to consider alternative proposals from other parties until July 5. But if upheld and approved, the acquisition is expected to close by the end of January 2023. The business unit created by Broadcom Software Group (with CA Technologies and Symantec) and VMware will operate under the VMware brand. According to experts, “the group formed will have the ability to develop business and telecommunications technologies that may be of interest to more users from the same sector”.

VMware SaaS

This year, VMware made it a priority to offer its core products in the form of subscriptions or SaaS offerings. “In particular, all of our software-defined data center offerings will be available as software in the cloud, as happened with our Tanzu cloud management, security and end-user-centric SaaS offerings. accelerate the transformation of our business model, ”VMware CEO Raghu Raghuram said in a conference call in February with financial analysts. For the fiscal first quarter of the year, which ended May 1, the vendor performed well, with SaaS subscriptions and revenue reaching $ 899 million, up 21% from the previous year. For this quarter, revenue from SaaS services and subscriptions reached 29% of total revenue, up 3% year-over-year to $ 3.09 billion. VMware’s core business is software, and analysts believe it will take a close look at how the company is progressing in desktop and server virtualization, virtualization of network functions (NFV), NSX networking software and other software technologies. “VMware is always making slow and continuous forays into different areas of network technology and innovation-SD-WAN, NFV infrastructure in the telecom and enterprise sectors, and I look forward to that will continue,” said Rohit Mehra, vice president of IDC’s Network and Telecom Infrastructure Group. “For example, the NSX was originally a pure network overlay that VMware evolved into a networking, multicloud and security platform for cloud, container and data center operations,” Mehra said.

Development of telcos

The company has also moved beyond telecommunications technologies, such as support for 5G. Last year, VMware launched the radio-access network (RAN) Telco Cloud Platform to allow service providers to virtualize their RAN operations. Raghu Raghuram, CEO of VMware, said that vendor support of 5G infrastructure to the end has resulted in a hybrid environment where the data center infrastructure has the same features as the cloud, and that in the future the ability it will play an important business role, a direction that Broadcom must pursue using its own chips in various telecommunications equipment. “VMware’s ambition is to install its virtualization stack on the 5G edge,” said Keith Townsend, director of The CTO Advisor. “Broadcom is better positioned in the telecom space and could open doors for VMware,” he added.

Opportunities in smartNICs

Another area where VMware and Broadcom can synergize is the development of smartNIC environments to offload server CPU tasks to a separate device to free up CPU cycles, support services in the cloud, processing, networking, storage and software-defined security and accelerate the deployment of edge, colocation networks or service providers. VMware has begun developing its Project Monterey environment, which combines bare-metal servers, graphics processing units (GPUs), programmable interconnect networks (FPGAs), network interface cards (NICs), and security in a large-scale virtualized environment. . One of the key components is VMware’s SmartNIC network card, which includes a general purpose CPU, out -of -band management and virtualized device functions. As part of the Monterey project, the publisher opened up its ESXi hypervisor to run on the NIC, making it possible to provide a single management framework for all IT infrastructure, whether virtualized or bare-metal. A deal between VMware and GPU giant Nvidia-also Intel’s partner-plans to bring the BlueField-2 Data-processing Unit (DPU) and other technologies to Monterey. Some of these projects may support engineering efforts undertaken by Broadcom. The latter also has its smartNIC card, and more precisely its Stingray adapter that targets network, storage and security applications.

Multiple integration options

“An engineering rapprochement between Broadcom’s existing portfolio and VMware’s could lead to better integration between products,” said Andrew Lerner, research vice president, Gartner. “This is the case, for example, between VMware Project Monterey and Broadcom’s semiconductor business, and between Broadcom’s ValuOps and VMware Tanzu,” he said. “Synergies are also possible between VMware’s Vrealize cloud management product line, including Vrealize Automation and Vrealize Operations, and Broadcom’s software stack based on technology derived from CA’s acquisition,” Naveen said. Chhabra, analyst at Forrester. “Integration can also lead to some streamlining, refining, you might say, of products,” Chhabra said. But the latter doesn’t think the co-development will go smoothly, especially since Monterey, in particular, involves other chipmakers. “Companies will certainly have some software synergies, but it’s not clear how the partnership of the two vendors will work with other major industrial players and service operators,” said Rohit Mehra of IDC. Analysts say the proposed takeover raises other questions. For example, a possible increase in rates for customers. Some are also wondering if VMware’s innovation will thrive under Broadcom’s ownership. “VMware is financially strong, the vendor has a large and loyal installation base, and its product portfolio is diverse,” said Andrew Lerner of Gartner. “VMware has a large installed base (500,000+) of enterprise customers who use its products in their data centers. And we can say they are deeply rooted in customer habits. But, due to Broadcom’s track record, VMware customers may not be able to continue the business as usual, ”Lerner added.

Is the price increase on the horizon?

“Based on Broadcom’s statements and precedent to CA/Symantec, we believe Broadcom will increase VMware licensing prices and adjust R&D spending,” said Gartner’s Lerner, citing that as a percentage of revenue, lower Broadcom spends more on R&D than VMware. “Broadcom has publicly stated that it is managing the software businesses it has acquired differently than ever before, with the goal of having its financial returns consistent with its own‘ strict ’business model,” it said. . he added. “Customers already feel they love VMware,” said Naveen Chhabra of Forrester. “Customers are already talking a lot about the ‘V-tax’ or VMware tax. Given recent announcements, they may be worried about price increases, as has happened with previous Broadcom acquisitions. Rising prices may put a stop to some companies. Some of them are already calling for alternatives, ”Chhabra noted.

Innovation Concerns

Broadcom’s approach to R&D also raises concerns about innovation. “Broadcom’s intentions, even in the past, do not show that change has been its priority. So we’ll see what happens this time,” Chhabra reiterated. On the bright side, however: the fact that what exists that Broadcom’s software operations will be integrated with VMware, which will retain its name, suggests that Broadcom has changed its attitude from its past acquisitions management and that there is room to achieve the integration of overlapping product developments. “Broadcom’s decision to rebrand its software business as VMware shows that its approach has changed from previous software acquisitions,” said Andrew Lerner of Gartner.

Caution for users

But, like any major merger between large tech companies, achieving synergies between bulk and different product lines is incredibly complicated, and urges users to be careful. “Users shouldn’t expect things to continue like they used to for a long time,” Lerner said. “They need to validate existing inventory to prepare for license changes and/or explore alternative vendors.” He also advised them to “press VMware for written roadmap commitments, price limits and exit clauses for multi-year licensing agreements.”

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