Broadcom Software President Ready To ‘Embrace The Channel’

‘There’s an opportunity to embrace the channel,’ said Broadcom Software Group President Tom Krause. ‘The two-tier distribution model, with distribution partners and key value added resellers. When I look at that in its totality, what we can’t do today, we can definitely take advantage of with the newfound scale between the two companies.”

VMware partners: get ready for a $61 billion hug.

Broadcom Software Group President Tom Krause said past mergers have taught the chip maker to respect the channel and the revenue opportunity it presents, and they are ready to “embrace the channel” this time.

“I think there’s some things we have learned relative to the CA and Symantec acquisitions in terms of the value of the channel,” Krause said on a Thursday morning call with analysts. “We want to continue to support that channel. That’s going to allow us to support a lot more revenues in a cost effective way. So we see a real opportunity to leverage that.”

Broadcom announced an agreement to acquire VMware for $61 billion in a 50-50 cash stock split that values VMware shares at a 44-percent premium to the company’s $95.71 closing price on Friday May 20, before rumors of the deal emerged. If the deal is approved, Krause’s division, Broadcom Software Group, will be rebranded VMware, with stand-alone revenues expected to hit near $20 billion.

“The fact that we can leverage this combined go-to-market engine, at that scale gives us huge economies,” Krause said. “I think what we are going to be able to do is marry a direct sales force, which covers the largest couple thousand customers, with a very significant channel partner arrangement.”

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Broadcom has a massive direct sales force, but no channel presence. Meanwhile, VMware’s 400,000 customers are largely served through channel partners. The gap between those two sales motions have existing VMware partners on edge about how Broadcom will reconcile the organizations. For Krause, the answer is to not fix what isn’t broken.

“There’s an opportunity to embrace the channel. The two-tier distribution model, with distribution partners and key, value-added resellers,” he said. “When I look at that in its totality, what we can’t do today, we can definitely take advantage of with the newfound scale between the two companies.”

Still, the talk of synergies in the sales force around common customers are likely to represent the thorniest obstacles if the two companies eventually merge.

“We’re going to focus on our common customers,” Krause told investors. “We have a significant go-to-market engine here at Broadcom. Obviously, so does VMware. In their own regard its actually much more significant than ours. So we have a direct sales force. We are going to leverage the fact that we have common coverage in both of those areas and take advantage of the synergies there.”

One analyst pointed out that Broadcom’s history is to focus on enterprise customers and “let the long tail whither.” Krause acknowledged that the company has learned a lot through its acquisitions over the last five years. He said with the purchases of Symantec and CA, Broadcom could drive operating margins at 70-percent by taking advantage of overlapping sales forces, and did not invest as much in go-to-market. However, all of that came at a cost to revenue. He said the market opportunity with VMware is bigger, but only if they take advantage of its partnerships.

“Learning about how we integrated CA and Symantec, and some of the revenues that we gave up. We think we can go back and reinvest in the channel to drive revenue growth profitably,” he said. “We don’t want to walk away from the channel. We actually want to embrace it.”