VMware customers should find 'exit ramps' ahead of Broadcom deal: Gartner

Broadcom may get unpleasant with customers after it acquires VMware, and customers need to be ready to jump, according to analysts at Gartner.

Customers should “identify exit ramps for deployed VMware products,” including identifying alternative solutions, migration plans, costs, risks, and timetables, Gartner said in a “Quick Answer” note written by analysts Andrew Lerner, Michael Warrilow, and Dennis Smith. Gartner issued the note in December, but the advice is still “up to date with Gartner’s position,” the analyst company said.

Gartner’s cautions are based on history. Customers complained about dramatic cost increases during renewals, with limited flexibility for negotiations, after Broadcom acquired CA Technologies in 2018 and Symantec’s enterprise security business in 2019, Gartner said.

Late last year, Gartner polled VMware customers and found only 7% were “very excited” about the Broadcom acquisition. Some 34% viewed the news as “negative,” saying they were “very concerned.” Another 35% rated the merger as “medium … taking a wait-and-see approach and/or there are equal positives and negatives.” And 23% of users polled said the deal doesn’t affect them.

VMware made “several frustrating recent changes that have amplified [customer] concerns,” Gartner says. These include 10% price increases on perpetual licenses in August, shifting from per-CPU to per-core licensing for some products, retiring Tanzu Community Edition open source, and several key leaders leaving the firm.

Not all doom and gloom

However, the report isn’t all doom and gloom; Gartner says customers should identify “potential benefits” too.

Broadcom says it won’t need to raise prices, and Gartner doesn’t believe Broadcom “plans to run an identical playbook for VMware” as for CA and Symantec. Instead, Broadcom will try to increase customer spending by expanding customer use of VMware products. Still, customers who don’t want to expand use of VMWare products will face cost increases via price increases, discount adjustments, metric changes, audits, or a combination.

On the plus side: Broadcom has made “credible public statements” supporting VMware’s portfolio, including the VMware Cloud Foundation suite, comprising vSAN, NSX, Vsphere and vRealize/Aria; Tanzu, and more. And potential benefits include greater technological resources for multicloud offerings with integration across Amazon Web Services, Microsoft, and Google; product synergies between VMware and Symantec products, including SD-WAN and Secure Access Service Edge (SASE); and improved professional services.

Broadcom will invest $2 billion in R&D and partnerships for VMware, the chip vendor said last week.

But before this any of this happens — good or bad — Broadcom has to close the deal.

Broadcom announced its $61 billion planned VMware acquisition a year ago, and since then, has faced intense scrutiny from the US Federal Trade Commission and European and British regulatory authorities.

In March, the British Competition and Markets Authority (CMA) launched an in-depth, Phase 2 investigation after raising regulatory concerns about reduced competition in the hardware market. Those kinds of concerns from the CMA killed about 60% of similar deals since 2019, noted a San Diego attorney specializing in antitrust, unfair competition, and complex business litigation. However, industry analysts are more optimistic.

The EU raised similar concerns in April.

Last week, the CMA blocked a $69 billion plan for Microsoft to acquire Activision Blizzard.. The CMA decision signals increased hostility by regulators toward big tech mergers, which could be bad news for Broadcom and VMware.

In response to an email query from Silverlinings, Broadcom said it expects the deal to close in its fiscal 2023, which ends in October, having received regulatory approval in Australia, Brazil, Canada and South Africa, and foreign investment control clearance in Australia, Austria, Denmark, France, Germany, Italy, New Zealand and the UK.

Broadcom said: “The combination of Broadcom and VMware is about enabling enterprises to accelerate innovation and expand choice by addressing their most complex technology challenges in this multi-cloud era, and we are confident that regulators will see this when they conclude their review.”

VMware responded to a similar email query from Silverlinings, writing: 

"We understand that customers have questions about what the future holds. We’ll refer to what Broadcom President and CEO Hock Tan has written which is that Broadcom is committed “…to keeping customers at the center of our business. Additionally, Tan has written:

"By investing and innovating in infrastructure software and VMware’s broad portfolio — including multi-cloud and cloud-native capabilities — we will bring our customers greater flexibility and deliver new solutions to help them connect, scale and protect their IT infrastructure. This will also empower our customers to modernize and architect their IT infrastructure while ensuring there will be large-scale, secure, and reliable, yet flexible, solutions to do so. Similarly, continuing to develop our ecosystem will enable partners to grow their businesses with expanded offerings of the combined portfolio and even better meet customers’ needs.”


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