2V0-41.23 mission - VMware NSX 4.x Professional Updated: 2024

The Broadcom Investment Thesis

After Broadcom Inc. (NASDAQ:AVGO) benefited from the market environment in 2023, 2024 will be the year of transformation for the company. With the acquisition of VMware (VMW) finally approved, a new era begins. Prior to 2024, sales were 79% semiconductor or hardware and only 21% software, but with the new acquisition, the projection for 2024 is that software will be 40%. And that is the turning point.

Prior to the VMware deal, the top 5 end customers accounted for 35% of net revenues and WT Microelectronics alone accounted for 20% of net revenues. Therefore, the deal minimized the risk of this constellation. Especially since Apple has plans to build its own chips and could disappear as a customer in the future. While they still have a long-term contract with Broadcom, things can change quickly in this industry, and with the new revenue from VMware, Broadcom is no longer as dependent on the top 5 customers.

VMware, with its mission-critical cloud software that is the foundation for many applications, seems to have good synergies with Broadcom's portfolio. It also helps Broadcom in the generative AI market because

Since I find AMD very interesting and think that they can steal market share from NVIDIA, you can read my latest article about them here if you are interested in the battle between the two giants in the GPU market.

Broadcom, which went from being a hardware company to a semiconductor company and is now transitioning to being half software and half semiconductor/hardware, has a large portfolio of many small electronic parts that we use every day without even realizing it. Just the fact that 99.9% of all Internet traffic passes through at least one Broadcom chip is crazy when you think about it. That sounds like a big moat to me.

Broadcom has built a strong ecosystem and deep industry expertise. The combination of storage, Ethernet, PCIe, and Fiber Channel means that many customers are dependent on Broadcom. Broadcom is the market leader in Wi-Fi, with nearly 80% of the infrastructure relying on Broadcom, 1 billion Broadcom DSL connections installed worldwide, and Broadcom server storage is used by a very large portion of enterprise server customers.

And thanks to high reliability, which is very important for mission-critical tasks, low latency, and high power efficiency in the desired areas, Broadcom is very popular with its customers. And the focus on software and especially data centers should pay off in the coming years.

Broadcom's Metrics and Balance Sheet

The most significant change is the increase in net debt from $25 billion to $70 billion to $80 billion as a result of the VMware deal. But as we can see in the picture above, this is part of Broadcom's strategy. They buy strong companies with debt, then Boost their margins, and then deleverage the balance sheet. And historically they have been very successful with this strategy.

And for me personally, the current level of debt is higher than I would like. I usually prefer companies that have no more than 4 times net income as net debt. However, since Broadcast's net income was only $14 billion in its last report, this is not the case. But we have to adjust the net income for the income that VMware will generate in 2024, and if we add that in, the net income could be over $20 billion, which would make the debt situation more comfortable.

In addition, Broadcom has plans to divest Carbon Black and EVC, and depending on how that goes, that could generate revenue. And FCF is also very strong at $17 billion. And if we adjust that for SBC, which is $2.7 billion, we get an SBC-adjusted FCF of about $15.3 billion. That should be enough to satisfy shareholders, buy growth, and ease the balance sheet.

ROIC And Capital Allocation

Broadcom has done a fantastic job in terms of ROIC over the last couple of years. They have taken it from the low single digits to 22%. And if we look at Broadcom's WACC, which I calculate to be about 9% based on a 4.5% cost of debt and a 9% cost of equity, we get a ROIC-WACC spread of 13%. A very strong number. Broadcom is clearly creating value through its M&A activity and also through organic growth. But maybe the ROIC will be a little bit lower now for the first year or two after the VMware acquisition, and then hopefully it will go back up.

With a large portion of FCF devoted to dividends and their phenomenal growth, shareholders have been handsomely rewarded. In addition, Broadcom has repurchased a lot of stock, further demonstrating that Broadcom's management is very shareholder-friendly.

Unfortunately, the buybacks were more to offset the dilution from SBC than to significantly reduce the share count. Still, Broadcom has been able to grow EPS and create shareholder value, even though the share count has increased since 2019. Their capital allocation in the form of M&A has simply been outstanding. Hock Tan's playbook of buying companies, cutting costs, and making them more profitable has been successful in exact years, but synergies are often overestimated and M&A is a tough playing field. But his track record is extraordinary when it comes to the success rate of his acquisitions. A clear case of exceptional management where most would fail.

However, it will be interesting to see how the large increase in shares outstanding from the VMware deal will affect EPS.

Broadcom's Reverse DCF

An excellent tool for determining whether a company is fairly valued is a reverse DCF. This involves looking at what is included in the stock price. And if we take the TTM diluted EPS of $32.98, we see that the stock is currently pricing in a 12% EPS growth rate over the next 10 years. But the historical EPS CAGR over the last 10 years is a whopping 31.15%. Well above the required target.

I do not think that Broadcom will achieve the same rate in the next 10 years, but I can definitely see them achieving a CAGR between 15% and 20% if the VMware integration goes well. This would make the shares look somewhat undervalued in this context.

What could EPS look like in 5 years?

EPS estimates also see a 16% CAGR over the next 5 years through October 2028, further fueling the positive outlook. If EPS is $80 to $85 in 5 years, the stock could trade over $2000 depending on the multiple. I don't think Broadcom has that much room for multiple expansion, but even a 25x multiple would supply the stock almost 100% upside.

Risks

The risks of Apple producing its chips in the future have been discussed, but I think the two biggest risks are definitely TSMC (TSM) and the M&A activities. TSMC produces 90% of Broadcom's wafers and also produces for almost every competitor. This gives it unparalleled market power and pricing leverage. Broadcom needs TSMC's products, and TSMC can almost dictate prices because no other company can currently deliver the same level of quality. The advantage in terms of know-how is simply very large at the moment.

The second risk is that Broadcom is a serial acquirer and will likely need new M&A targets to fuel growth as VMware ages. VMware has brought in significant recurring revenue, but what is the impact of this really big software acquisition? And will there be enough attractive targets left that won't be blocked by antitrust regulators?

And Hock Tan's age, 72, is a risk because he is responsible for much of the success. Will the success story continue when he retires? A difficult question to answer.

Conclusion

All in all, the stock looks undervalued from a long-term perspective. Over the next 5 to 10 years, the VMware deal and data center focus should drive strong earnings growth. And given the company's shareholder-friendly management, the dividend should continue to grow strongly to reward shareholders. Even if the multiple comes down a bit, earnings growth and dividend increases should be enough to support returns.

But it is important to remember that this is the largest and most transformative acquisition in Broadcom's history. And just because everything worked so well in the past does not mean it will work as well in the future.

VMware partners that invest in learning the vendor's new storage and networking technologies may soon get a shot at potentially lucrative professional services projects.

In a pilot program unveiled Tuesday at VMware's partner conference in San Francisco, VMware will let services-savvy partners which meet its requirements sell and deliver professional services to customers.

VMware has its own professional services organization, but with new products like NSX, VSAN and vCloud Air now on the market, it's looking to leverage partners' services muscle to meet expected future demand.

"We've grown up as a company that needs professional services. Now, for scale, we need to [bring] partners into the services value channel. Partners that make the investment will get rewards," Dave O'Callaghan, senior vice president of channels and alliances, said in a press conference at the event.

VMware will bring a "limited number" of partners into the program during the first half of the year, and plans to expand its scope in the second half, the Palo Alto, Calif.-based vendor said in a press release.

[Related: VMware Execs Say Software-Defined Data Center Is A 'Bridge To The Future' For Customers]

VMware says partners with skills that span the whole VMware software-defined data center portfolio get priority consideration for the program. While most every partner knows vSphere server virtualization, a lesser number are up to speed on VMware's storage and networking technologies.

Partners in the program will sell services to customers directly, owning the billing relationship. They'll also have free access to VMware's software-defined data center experts, as well as discounted training and other benefits.

Jason Silva, principal at Revel Technology, a Houston-based solution provider and VMware channel partner, told CRN he was impressed that VMware is launching a channel program specifically for professional services.

"VMware for years had ESX," Silver said. "Now it has NSX, AirWatch, and other new things that need to be integrated. I think VMware is trying to round out its partners' professional services capabilities so that they are not just relying on VMware's own professional services."

Getting certified and up to speed on professional services for VMware's growing solution set is a big differentiator for channel partners, Silva said. "This will be beneficial to us," he said. "This is not just a discount on products. We will need to show we are dedicated to the solution set."

In another sign of VMware's commitment, the vendor has hired a new vice president specifically for the program, Silva said. "This is the first time VMware had someone specific to professional services through the channel," he said.

VMware, which plans to make a big channel push with Airwatch this year, also launched a mobility competency for partners. And in Q2, VMware says it plans to launch a software-defined data center competency.

VMware on Tuesday introduced its solution provider community to increased incentives aimed at helping customers take advantage of new virtualization and cloud opportunities, but in return wants its partners to increase their investment in training.

VMware used the official opening day of its VMware Partner Exchange Conference, held this week in Las Vegas, to emphasize the importance of getting training in competencies that will help them help customers virtualize many of their legacy tier-one applications, said Doug Smith, the company's vice president of global partner strategy and operations.

"We see competencies as a big opportunity for partners," Smith said. "There are a lot of opportunities in the marketplace to virtualize tier-one apps. There have been a lot of moves to virtualize tier-two applications. But tier-one apps are much more sticky."

VMware's new competencies recognize the extra challenges that go with moving tier-one applications to a virtualized or cloud environment, Smith said.

"With mission-critical applications, the guy making the decision how to handle them is different from the guy managing virtualization," he said. "And uptime and availability are much more critical than with tier-two applications."

With that in mind, VMware on Tuesday introduced three new solution competencies to its partners.

The first is VBCA, or Virtualization of Business-Critical Applications, which was designed to help solution providers provide guidance and solutions to help customers virtualize such business-critical applications as Exchange, SQL, Oracle and SAP.

The second is IaaS, or Infrastructure-as-a-Service, and is aimed at helping solution providers deliver VMware hybrid cloud solution and services.

The third competency, management, targets helping partners who move their customers to simplify and automate virtualized and cloud environments using the company's vCenter Operations Management Suite.

Both the VBCA and IaaS competencies are available as of Tuesday, while the Management competency is slated to be available later this quarter.

To help solution providers make the move toward increased competencies, VMware has doubled its advantage+ deal registration for net-new VMware customers via a new back-end rebate, Smith said.

The company also has doubled its Solution Rewards rebates with a new first-time sale bonus rebate tied to the company's solution competencies on a solution sold outside the company's Infrastructure Virtualization competency, he said.

However, those incentives will require new investments from partners, Smith said.

"Before, partners needed one person trained in a competency," he said. "We have been telling partners informally that they really need two people to get trained. Now we've finalized this requirement."

Solution providers looking to take advantage of the new incentives will have six months time to get a second person trained in competencies. "We've doubled down," he said. "We're asking partners to double down as well."

VMware also used its online VMware Partner Exchange to update channel partners on its VMware Solution Exchange, which now offers 3,500 applications from more than 2,000 technology partners.

VMware also enhanced its tools and incentives for partners helping SMBs with virtualization solutions. This includes new demand creation tools, on-demand access to free training and enhanced bonuses in the advantage+ program, Smith said.

"We think virtualization is a heavy SMB play," he said. "Most enterprises already have a VMware footprint. We feel new business will come mainly from SMBs."

Next: Adding Rewards On Top Of OEM Partner Awards

VMware is also changing how it recognizes solution provider sales of its products sourced from OEM partners, including Cisco, Dell, Fujitsu, Hewlett-Packard and IBM. Going forward, partners who sell VMware products from those OEMs will be able to add those sales as credits toward their other VMware partner awards, Smith said.

"We want to be as neutral as possible in terms of where partners want to source their products," he said.

VMware in April also plans to start its Partner Rewards Incentive Management Program, a new tool giving solution providers easy-to-use ways to track and manage the awards they have achieved through the new advantage+ and Solution Rewards incentive program enhancements.

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If VMware is causing a Blue Screen error on Windows 11/10, the following tips could be handy for you. There are different reasons why your host computer fails to load the VMware virtual machine. This article explains some of the most common causes and solutions to mitigate this issue within moments.

If VMware causes a Blue Screen on Windows 11/10, follow these steps:

1. Update VMware
2. Low computer resource
3. Turn off Hyper-V
4. Disable other virtual machines
5. Corrupt ISO file

To know more about these steps, continue reading.

1] Update VMware

It is probably the very first thing you need to check. There could be times when VMware might fail to make your virtual machine up and running due to a glitch or bug. If you have recently updated your VMware app, it might come with a bug that could cause the aforementioned issue.

In most cases, companies recognize the bug and roll out an update almost immediately. If the same thing happens with your VMware installation, chances are they have already released an update. That is why it is recommended to check the official statement and install the update if anything has been released.

2] Low computer resource

Although the official statement says something about the 1.3GHz processor and 2GB of RAM, you might not be able to run a virtual machine smoothly or at all, having such resources. It is always recommended to configure much better hardware than the mentioned one.

If you have an old x64 architecture, you might not be able to run VMware virtual machines. In other words, there is a high chance of getting the blue screen error on the host computer while running the virtual OS. That is why it is recommended to have a better hardware configuration to bypass the BSOD

Pro tip: You can open Task Manager alongside VMware to check which app is consuming more RAM and other resources. Then, you can close such unnecessary apps to assign more CPU resources to VMware.

3] Turn off Hyper-V

Hyper-V is a Level 1 hypervisor that makes the host computer into a virtual PC. On the other hand, VMware is a Level 2 hypervisor that uses the host computer to build the virtual machine. That is why if you enabled Hyper-V earlier, you might not be able to use VMware or VirtualBox-like virtual machine apps simultaneously. You must disable either of them. In other words, if you want to use VMware, you need to disable Hyper-V.

To disable Hyper-V in Windows 11/10, do the following:

• Click on the Taskbar search box.
• Search for windows features.
• Click on the individual search result.
• Remove the tick from the Hyper-V checkbox.
• Click the OK button.
• Let it finish all the processes.
• Restart your computer.

Once done, you will be able to use VMware without any BSOD.

4] Disable other virtual machines

Many people often use multiple virtual machine apps, such as VirtualBox, VMware, etc., simultaneously. In most situations, such workflow might cause a blue screen error on your computer. That is why it is recommended to disable other virtual machine software. For that purpose, you can take the help of the Task Manager to terminate all the dependencies.

5] download ISO file again

If VMware causes a blue screen while installing the virtual machine OS, it is suggested to download the ISO file again. If the ISO comes with some corrupt files, there is a chance of getting BSOD while using that ISO in the virtual machine. You can follow this guide to download Windows 11/10 ISO directly.

Read: How to fix VMware Internal Error while powering on

Can VMware cause BSOD?

Yes, VMware can cause BSOD on Windows 11/10 PC. As said earlier, there could be countless reasons why you might get a blue screen error due to having VMware on your computer. For your information, some common reasons are mentioned in this article, and it is recommended to follow them to get rid of this issue.

Is VMware compatible with Windows 11?

Yes, VMware is compatible with Windows 11. If you have successfully installed Windows 11 without compromising the official system requirements, you can easily install VMware on your computer. As per the official statement, VMware requires a minimum of 2GB RAM along with 1.3GHz clock speed. On the other hand, it runs on almost all the x64 architecture without any problem.

Read: VMware does not support the user level monitor of this host.

Broadcom, under the leadership of CEO Hock E. Tan, recently closed its $69B acquisition of VMware. Post-acquisition, Broadcom is moving quickly in undertaking several critical initiatives with VMware that, while likely beneficial to Broadcom shareholders over the long term, are causing uncertainty among many VMware customers.

Transition to Subscription Model

One of Broadcom’s primary strategies to drive revenue growth is shifting VMware's business model from a perpetual license to a subscription-based one. This change aims to provide more predictable and stable revenue streams and aligns with the broader industry trend towards subscription services.

The move, as described by Tom Krause, president of the Broadcom Software Group, during the company’s most exact earnings call, is central to Broadcom’s plan to boost VMware’s contribution to its pro forma EBITDA to approximately $8.5 billion within three years, a considerable increase from VMware’s current production of about $4.7 billion. The emphasis on subscriptions is a key component of this ambitious growth target.

Broadcom's move to subscription models could lead to slower short-term growth for VMware and necessitate restructuring contracts from perpetual to subscription. VMware's strategy includes a trajectory of accelerated growth. The move to higher-value software stacks and subscription sales is expected to drive revenue growth over the next three years.

This transition could also affect VMware's customer relationships, as customers may push back against the shift to subscriptions, which are generally perceived as more expensive than perpetual licenses. VMware's expansion beyond infrastructure management with products like Tanzu could face hurdles if customers pause or reconsider their investments amid these changes.

Selling off Desktop & Carbon Black

During its earnings call, the company revealed plans to divest VMware's end-user computing portfolio and its Carbon Black security software unit. This strategic move aligns with Broadcom's stated intent to concentrate VMware's resources and efforts on creating global private and hybrid cloud environments tailored for large enterprises.

The end-user computing portfolio, encompassing desktop virtualization, application publishing, and mobile device management, alongside Carbon Black, a security software unit, are identified as non-core assets and are set to be separated from VMware's main business.

Broadcom expressed a commitment to finding suitable buyers for these units, ensuring they find "good homes," considering that many of their customers overlap with those of VMware's core products. This decision reflects Broadcom's broader strategy to refine VMware's product offerings and focus on areas that align with its vision of developing high-value cloud infrastructure solutions for global enterprises.

The company said that the moves are essential to redirect VMware's efforts towards its primary business of creating private and hybrid cloud environments, which is crucial for large enterprise customers worldwide.

Layoffs

Just days after it closed its acquisition, news emerged that Broadcom is set to lay off at least 2,837 VMware employees. This includes a substantial number at its Palo Alto campus in California, accounting for 1,267 employees, and 577 at its Austin facility.

It's important to note that the genuine number of layoffs could exceed these figures since not all layoffs must be reported through WARN notices. The total workforce of VMware globally is around 38,300 employees.

The layoffs are officially attributed to "economic" reasons, although Broadcom has not provided further specifics or justifications. Despite these layoffs, VMware remains a central piece in Broadcom's strategy for its enterprise software segment.

Analyst’s Take

You can look at a company from the perspective of the customer or the stockholder. I’m not a financial analyst, so I’m going to interpret Broadcom’s actions with a view of how those actions might impact an IT organization; after all, the IT practitioner is most directly impacted.

Broadcom's acquisition of VMware represents a strategic pivot that underscores the semiconductor giant's intensified focus on enterprise software. Transitioning VMware towards subscription models is a savvy move that aligns with broader market trends. But this shift may test customer loyalty, as subscription models often imply higher costs over time than perpetual licenses.

The decision to divest VMware's end-user computing and Carbon Black units clearly indicates that Broadcom seeks to sharpen VMware's focus on its core competencies in cloud environments. Such divestitures could streamline operations while also raising questions about future innovation and support for VMware's broader product suite.

Layoffs following the acquisition, while delivering operational cost savings, may have a broader impact on VMware’s innovation trajectory and customer service capabilities. This reduction in force, ostensibly for economic reasons, could introduce risks related to execution and market perception.

Predicting how Broadcom's moves will impact VMware products and services over the long term is impossible. The swiftness with which Broadcom instituted layoffs and product divestitures raises questions about how it will guide VMware forward.

As in any period of uncertainty involving technologies fundamental to critical IT infrastructure, IT organizations are well-advised to comprehensively analyze the risks involved before committing to any significant VMware deployment or renewing long-term license agreements. IT buyers should look to mitigate risks with a dual-vendor approach where feasible.

Many VMware customers are already adopting alternative solutions. Nutanix, VMware’s closest competitor, revealed record growth in its most exact earnings. While much of Nutanix’s growth was driven by its own strategic initiatives, CEO Rajiv Ramaswami acknowledged that the company did “close some additional deals” explicitly because of uncertainty about how the acquisition will unfold.

With the industry watching, Broadcom's stewardship of VMware in the coming fiscal year will be a critical test of its strategic vision for enterprise software dominance. While Broadcom is clearly focused on getting the financial aspects of the acquisition quickly under control, how the company will deliver long-term value to its VMware customers will become clearer.

Until there's clarity, however, IT organizations should continue to act with caution. Mitigating risk, after all, is the number one job for enterprise IT.

Disclosure: Steve McDowell is an industry analyst, and NAND Research an industry analyst firm, that engages in, or has engaged in, research, analysis, and advisory services with many technology companies, which may include those mentioned in this article. Mr. McDowell does not hold any equity positions with any company mentioned in this article.

Mission Statement

The Center for Practical and Professional Ethics takes as its overriding mission to foster and enhance the place of ethics in professional and public discourse, and to foster and support ethical practice, both in the University Community and in the broader Sacramento Region. Its mission is, therefore, educative, scholarly and practical.

Objectives

The mission of the Center will be accomplished through the following objectives:

• To provide an educative and scholarly service to the University community, regional educational institutions, the local public, and to the broader Sacramento Region
• To provide resources to enhance the role of ethics education in the curriculum through sponsoring Ethics Across the Curriculum workshops for faculty in all disciplines for which ethics is a concern
• To sponsor a regular colloquium series which brings scholars and community members together to better understand the ethical implications of various public policy initiatives, legislation and ballot measures, as well as to facilitate a greater awareness of ethics in our daily personal and professional lives
• To be available as a community resource and clearinghouse for ethics information, consultancy, and education
• To foster and develop opportunities for faculty research in practical and professional ethics
• To foster and develop opportunities for faculty and student collaboration in research in practical and professional ethics
• To foster and develop opportunities for interdisciplinary collaboration in both research and teaching in the areas of practical and professional ethics.

Relationship to the University's Mission

The quotations in the text are taken directly from the University's mission statement [CSUS Mission Statement (March 29, 2004) ]. These express the principal values the University seeks to promote through the activities of the institution as a whole.

The principal work of the Center for Practical and Professional Ethics, as an ethics center, demonstrates a commitment to “fostering in all its members a sense of inclusiveness, respect for human differences, and concern for others.” In its normative (practical and applied) sense, ethics is focused on providing the cognitive and intellectual means for living well with others. At the heart of an ethics center's activities and service is this commitment to proving the means – through education, awareness raising, practical training, research support and analysis – for all members of the university and broader professional and public community to live better lives, both personally, professionally and socially.

The Center for Practical and Professional Ethics will affirm the University's mission and demonstrate a dedication to “advancing the many social, economic, political, and scientific issues affecting the region and the state.” The principal function of the Center is to provide an educative and scholarly service to the University community, the local public, and to the broader Capitol region. The Center provides resources to enhance the role of ethics education in the curriculum through sponsoring Ethics Across the Curriculum workshops for faculty in all disciplines for which ethics a concern. The Center also sponsors an annual symposium which brings scholars, professionals and community members together to better understand the ethical implications of public policy initiatives, legislation, ballot measures, as well as to facilitate a greater awareness of ethics in our daily personal and professional lives.

The Center for Practical and Professional Ethics will affirm the University's mission and contribute directly to the “vital connections between pedagogy and learning, research activities and classroom instruction, and co-curricular involvement and civic responsibility.” Among the principal projects of the Center is to support research into ethical issues, as these arise in various sectors of public and professional life. This support extends to faculty, but also includes collaborative activities between faculty and students. As well, all of the public forums which the Center sponsors will be open to all members of the University and Sacramento communities. Students in courses where ethics is taught will especially be invited to participate and attend. Further, it is the project of the center director to secure sufficient funding to hire student research assistants, whose work will contribute to their own ethical and professional development. Finally, the potential for establishing regular partnership programs with area businesses, professionals, and public service organizations will support the Philosophy Department's existing internship program in applied ethics and law.

The Center for Practical and Professional Ethics will affirm the University's mission and contribute directly to the honored CSUS tradition of having our “research centers and much of our individual scholarly efforts remain directed at the enhancement of the quality of life within the region and the state.” The mission and activities of the Center will contribute directly and immediately to this element of the university's mission. One of the principal functions of the Center will be to organize and sponsor forums on public policy matters of importance to the local community. Our location in the state capitol and the number of CSUS alumni (from Philosophy and other departments) who are active in the state legislative process means that the Center is particularly well placed to raise awareness in the University and broader community about pending legislative and other public policy initiatives. This allows the Center to organize timely public discussion of important public policy issues through the hosting of regular forums.

For example, if there is an agricultural, health care, or environmental bill pending before the legislature, the Center will bring together local experts, scholars and community members to discuss the policy and its ethical implications. This function is especially important during election years, since much of California's important public policy comes in the form of public referenda. In this way, the Center offers a unique service by providing the means for public deliberation of the ethical implications of important public policy initiatives.

Broadcom has moved forward with plans to transition VMware, a virtualization and cloud computing company, into a subscription-based business. As of December 11, it no longer sells perpetual licenses with VMware products. VMware, whose $61 billion acquisition by Broadcom closed in November, also announced on Monday that it will no longer sell support and subscription (SnS) for VMware products with perpetual licenses. Moving forward, VMware will only offer term licenses or subscriptions, according to its VMware blog post.

VMware customers with perpetual licenses and active support contracts can continue using them. VMware "will continue to provide support as defined in contractual commitments," Krish Prasad, senior vice president and general manager for VMware's Cloud Foundation Division, wrote. But when customers' SnS terms end, they won't have any support.

Broadcom hopes this will force customers into subscriptions, and it's offering "upgrade pricing incentives" that weren't detailed in the blog for customers who switch from perpetual licensing to a subscription.

These are the products affected, per Prasad's blog:

• VMware Aria Automation
• VMware Aria Suite
• VMware Aria Operations
• VMware Aria Operations for Logs
• VMware Aria Operations for Networks
• VMware Aria Universal
• VMware Cloud Foundation
• VMware HCX
• VMware NSX
• VMware Site Recovery Manager
• VMware vCloud Suite
• VMware vSAN
• VMware vSphere

Subscription-based future

Broadcom is looking to grow VMware's EBITDA (earnings before interest, taxes, depreciation, and amortization) from about $4.7 billion to about $8.5 billion in three years, largely through shifting the company's business model to subscriptions, Tom Krause, president of the Broadcom Software Group, said during a December 7 earnings call, per Forbes.

"This shift is the natural next step in our multi-year strategy to make it easier for customers to consume both our existing offerings and new innovations. VMware believes that a subscription model supports our customers with the innovation and flexibility they need as they undertake their digital transformations," VMware's blog said.

With changes effective immediately upon announcement, the news might sound abrupt. However, in May, soon after announcing its plans to acquire VMware, Broadcom CEO Hock Tan signaled a “rapid transition” to subscriptions.

At the time, Tan pointed to the importance of maintaining current VMware customers' happiness, as well as leveraging the VMware sales team already in place. However, after less than a month of the deal's close, reports point to concern among VMWare customers and partners.

Customer and partner concerns

VMware's blog said "the industry has already embraced subscription as the standard for cloud consumption." For years, software and even hardware vendors and investors have been pushing IT solution provider partners and customers toward recurring revenue models. However, VMware built much of its business on the perpetual license model. As noted by The Stack, VMware in February noted that perpetual licensing was the company's "most renowned model."

VMware's blog this week listed "continuous innovation" and "faster time to value" as customer benefits for subscription models but didn't detail how it came to those conclusions.

"Predictable investments" is also listed, but it's hard to imagine a more predictable expense than paying for something once and having supported access to it indefinitely (assuming you continue paying any support costs). Now, VMware and its partners will be left convincing customers that their finances can afford a new monthly expense for something they thought was paid for. For Broadcom, though, it's easier to see the benefits of turning VMware into more of a reliable and recurring revenue stream.

Additionally, Broadcom's layoffs of at least 2,837 VMware employees have brought uncertainty to the VMware brand. A CRN report in late November pointed to VMware partners hearing customer concern about potential price raises and a lack of support. C.R. Howdyshell, CEO of Advizex, which reportedly made $30 million in VMware-tied revenue in 2022, told the publication that partners and customers were experiencing "significant concern and chaos” around VMware sales. Another channel partner noted to CRN the layoff of a close VMware sales contact.

But Broadcom has made it clear that it wants to "complete the transition of all VMware by Broadcom solutions to subscription licenses," per Prasad's blog.

The company hopes to convince skeptical channel partners that they'll see the way, too. VMware, like many tech companies urging subscription models, pointed to "many partners" having success with subscription models already and "opportunity for partners to engage more strategically with customers and deliver higher-value services that drive customer success."

However, because there's no immediate customer benefit to the end of perpetual licenses, those impacted by VMware's change in business strategy have to assess how much they're willing to pay to access VMware products moving forward.