VMware Partners Fear Sales, Innovation Slowdown With Broadcom Deal

‘We saw people pull back when VMware got bought by Dell,’ a large VMware partner says. ‘They were worried about what they were going to do (to the company). We got through it ok, but there was a quarter or two where it was pretty shaky.’

Seasoned VMware partners warn that a Broadcom acquisition could stall big-dollar licensing agreements as enterprise customers wait to see if the new owners have a strategy for the ubiquitous virtualization software.

“Imagine how many ELAs (enterprise license agreements) are going to get tabled because they’re saying, ‘Well, we don’t have a relationship with Broadcom,’” said an executive at a longtime VMware partner. “If you have a $10 million ELA in the wings, you are probably going to hold it until you find out if it is worth continuing to make investments and lean in with these guys? You wouldn’t want to sign a five-year deal, only to find out six months later they put everything into Broadcom chip sets.”

Broadcom and VMware announced the $60 billion deal Thursday ahead of VMware’s Q1 2023 earnings call. The semiconductor heavyweight and the virtualization leader are expected to create a tech goliath with more than 50,000 employees and a combined market cap greater than $250 billion.

[RELATED: Broadcom’s $61B Buy Of ‘Iconic’ VMware: 5 Big Things To Know]

However, partners are worried that a massive company with no experience in VMware’s environment is more of a threat to business than a partner.

“We saw people pull back when VMware got bought by Dell,” the partner continued. “They were worried about what they were going to do. We got through it OK, but there was a quarter or two where it was pretty shaky.”

He said it wasn’t until the company had an executive roadmap that charted the importance of working with multiple OEMs, and demonstrated the importance of the channel, that he saw a thaw in sales.

C.R. Howdyshell, president of Advizex, No. 153 on the CRN SP500, told CRN that customers are also concerned about the impact a Broadcom deal could have on their VMware relationship. In fact, he said, Advizex is in the midst of trying to finalize an enterprise licensing agreement with a Fortune 20 customer that wants to fast track the deal in the wake of the Broadcom acquisition.

“This customer did not have a positive experience with Broadcom and wants to expedite the deal,” he said. “They want to get the ELA done by the end of June so they don’t have to deal with Broadcom.”

Fortunately, Howdyshell said, the VMware channel and sales team are working closely with Advizex to get the deal done. “The VMware team is helping us work this out,” he said.

Howdyshell is worried that the strong VMware channel relationships his team has built up could be negatively impacted by the Broadcom acquisition.

“We just finished our quarterly business review with VMware and our numbers are up 200 percent this year,” he said. “I’m concerned about the future direction of VMware under Broadcom. We feel like we have just started building momentum after the Dell spinoff. We do little to no work with Broadcom. I wouldn’t even know who to call at Broadcom if we had an issue.”

Concerns About VMware Cloud Innovation

The Broadcom acquisition puts VMware’s multicloud innovation and channel strong hold in jeopardy, said the CEO of an SP 500 solution provider who did not want to be identified.

“I was shocked when I saw this deal, Broadcom has a bunch of old dinosaur software technology that appears to be being milked for renewals,” said the CEO, who counted himself as one of VMware biggest supporters for many years. “Broadcom claims they are trying to get into the multicloud and hybrid cloud game with this acquisition. They need to show they are not just in maintenance mode, milking the VMware renewals. They need to use all that cash rolling in from VMware to innovate. They need to show there is a plan to transform and pull all this technology together and that this is not just a final resting place for VMware.”

The deal raises prospects that partners – who have considered VMware a channel stalwart for many years – will reevaluate their partnership with the company, said the CEO. “We have heard nothing from VMware,” he said. “VMware was one of the most transformative forces in this industry. This could move them from a strategic differentiator toward becoming a footnote – even though they will be an important footnote because they are so widely deployed.”

VMware Cuts On The Way?

Several partners told CRN they are worried that Broadcom will use the acquisition to make significant cuts to VMware’s research and development and sales, general and administrative expenses.

Since Broadcom acquired Symantec’s enterprise security business in 2019 for $10.7 billion and CA Technologies’s software portfolio in 2018 for $18.9 billion it has cut the cost base at those two businesses by 60 to 70 percent, according to a report from Sanford C. Bernstein & Co.

A top sales chief for an SP 500 company, who did not want to be identified, said there is a lot of angst in both the channel and among VMware employees in the wake of the blockbuster deal. “There are a lot of people in the channel and at VMware that are nervous looking at the future,” he said. “It’s a very weird and odd acquisition.”

Broadcom needs to prove its channel mettle by appointing a big name channel chief with the aim of revitalizing the VMware channel, said the sales executive.“Nobody knows Broadcom in the channel, we have never dealt with them,” said the sales chief. “They need to bring in a strong channel chief to reestablish relationships with the channel. They have to come and build a strong channel to scale the business. They need to reconnect to the channels in a bigger and stronger way than ever.”

Partners Want To Hear From Broadcom

A top executive for another SP 500 company, who did not want to be identified, said Broadcom needs go into detail with regard to its technology and channel vision.

“We need to know what their go to market and technology vision is for the future,” said the sales executive. “We need to know what is the three to five year plan to integrate VMware technologies into the existing Broadcom portfolio, when will that be announced and what is the channel go to market for that strategy.”

A big question hovering over the Broadcom acquisition of VMware is how it will affect VMware’s software licensing relationships with Dell Technologies and Hewlett Packard Enterprise, said the sales executives. “We need to understand what their strategy is with those alliance partners that we buy through,” said the sales executive.

Smaller VMware partners with decades invested in the ecosystems are watching closely as new hands once again take control of a steady technology that hundreds of thousands of global customers, from the SMB to the largest enterprises, rely upon.

“VMware is the center of the world for many organizations’ technology stack. Then there are all the vendors who are building to it and using it for reporting and management and control, and all the security tools and everything that has been designed around it,” said a technology executive at an MSP on the west coast. “The downstream impacts of them getting this wrong could be astronomical.”

However, not all partners are not all issuing dire warnings about the software. One said Broadcom could be just what VMware needs to reach its potential, if it invests in the channel.

“If you take a glass-half-full approach,” he said. “If they buy VMware, and they buy in to the partnering arrangements they have today, and the direction they are going to improve the partner relationships around the lifecycle, they could bring other technologies into the fold, and bolster their partnering.”

Still Broadcom is not known for nurturing companies to profit, another partner added.

“If Cisco would have acquired them, it would have made sense,” one partner continued. “Dell, when they owned them, we loved that. At least it was channel driven. This is fraught with risk. When a company is a channel-led organization, all the way down from the top, the executives are making business decisions that account for the channel. I just don’t see Broadcom showing up as channel-leading company. They do a lot of that direct.”

Broadcom President Pledges Commitment To Channel

In a call with investors that announced the deal, Broadcom Software Group President Tom Krause said past mergers have taught the semiconductor to respect the channel and the revenue it presents.

“There’s an opportunity to embrace the channel and the two-tier distribution model, with distribution partners and key value added resellers,” Krause 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.”

In that same call Krause talked about using the channel and direct motions to go to market, but he also mentioned finding synergies among customers the two companies share. A smaller partner said that the hiring or firing that Broadcom carries out next will reveal much about its intentions.

“The question is, are they going to cut all the expenses out: all of the reps, all of the support people,” the partner asked. “That’s the other thing that happens. The best reps, because they are paid the highest, get axed. Rookies are brought in to lower the commission cost on sales.”

A sales executive at a larger VMware partner said while Broadcom may not be channel-friendly, it would take several years and a great cost as well as significant hiring to replace the channel that VMware has built.

“It would take a tremendous amount of investment. They would have to hire a significant amount of direct sales reps and engineers than they have today,” he said. “The only way I see this working out for Broadcom is if they allow it to be its own stand alone, separate company, and let VMware go to market separately. But I don’t see how Broadcom leverages the investment, if they don’t try to tuck it in.”