Broadcom Lets HPE Use Existing VMware OEM Agreement To Provide ‘Alternative’ To Dell VxRail

'Customers that need VMware and rely on it are going to have to pay a lot more money to use it,' says an HPE VMware partner, who did not want to be identified. “Short term the HPE Broadcom OEM extension might mean some additional VMware business for us but long term we are looking for alternatives.”

Hewlett Packard Enterprise has been given the green light by Broadcom to use its existing VMware OEM agreement in order to provide “an alternative solution to customers contemplating the purchase” of Dell Technologies popular VxRail product.

The CEO for an HPE partner, who received the HPE OEM extension communication and did not want to be identified, said he has always viewed Dell as having an edge in the hyperconverged market because it owned VMware.

“We typically have sold VMware licenses with HPE,” he said. “HPE still has a path for us to sell it, but I always told our teams when we were competing against Dell on VMware assume they have an inside track and act like you are starting in second place.”

The Broadcom OEM agreement extension covers HPE OEM VMware SKUs for one and three years and is “specific” to “needed HPE hardware solutions” as an “alternative to Dell’s VxRail,” according to HPE communication sent to partners, sources told CRN.

CRN reached out to HPE and Broadcom but both vendors would not comment.

The HPE agreement is only in place until the end of business on April 30 with a “no exceptions” rule. It covers VMware vSphere, vCenter, vSAN, vRealize, vCloud, VCF (VMware Cloud Foundation), NSX, Aria and HCI kits.

The HPE OEM agreement comes even as Dell Technologies is still able to sell its VxRail and VmWare Cloud Foundation on VxRail with perpetual licenses until April 30. This even after Dell said in a Securities and Exchange Commission filing in February that it was killing it existing agreement with VMware in the wake of Broadcom’s $69 billion acquisition of VMware last November.

Dell partners told CRN that customers are racing to finalize perpetual licensing deals in order to avoid what they say will be as much as 30 percent price increase of Dell VxRail once the deadline passes in two weeks.

The communication on the HPE OEM extension does not include perpetual licenses but rather “applies to private offerings, ELAs (Enterprise Licensing Agreements), new support as well renewals for all VMware products HPE previously offered.”

Even with the OEM extension, HPE partners told CRN that customers are unhappy with the changes at VMware and are actively looking at alternatives. “More than 50 percent of our VMware customers have reached out to say they are concerned and they want to be aware of alternatives,” said an HPE partner, who did not want to be identified.

A top sales executive for another HPE enterprise partner said the short-term fix helps for two more weeks but the bigger issue is just what the new HPE OEM agreement will look like compared to Dell. He is hoping HPE will get more favorable terms that level the playing field with Dell.

“Short term we’ll be working to close deals on HPE because customers want to meet the April 30 deadline,” he said.

Even with a new HPE Broadcom VMware OEM agreement the sales executive said his company is looking for an alternative to VMware.

“Broadcom wants to focus on the bigger, more profitable customers,” he said. “From a financial standpoint it makes sense for them, but it leaves a lot of people in the lurch. Customers that need VMware and rely on it are going to have to pay a lot more money to use it. Short term the HPE Broadcom OEM extension might mean some additional VMware business for us but long term we are looking for alternatives.”

HPE and Dell are bitter competitors in the hyperconverged infrastructure hardware market which Dell has dominated in the wake of its acquisition of VMware in 2016 with VXRail,

Dell, in fact, generated at least $17.3 billion in revenue for VMware since 2021, and it annually provided nearly 40 percent of the virtualization giant’s sales through an ongoing partnership that was meant to last until 2026, according to regulatory filings.

In 2023, Dell dominated the hyperconverged worldwide revenue hardware market with market share of 34.7 percent ($3.55 billion) compared with 14.9 percent ($1.52 billion) for Nutanix and 9.5 percent ($967.33 million) for Hewlett Packard Enterprise, according to market researcher IDG.

In February, Dell said in the wake of the sale of VMware to Broadcom that it was killing the agreement which allowed it to act as a “distributor of VMware products and services.” Nevertheless, Dell was still able to continue to sell the co-engineered embedded solutions such as VXRail and Carbon Black.

“Broadcom and VMware solutions remain a part of Dell’s portfolio of products, including embedded solutions such as VxRail and Carbon Black,” Dell said at the time.

The HPE OEM extension does not include Carbon Black or VMware End User Compute (Horizon) offerings.

Broadcom is in the process of moving to new OEM agreements covering what it calls a “simpler product” portfolio with VMware Cloud Foundation and VMware vSphere Foundation

Broadcom Vice President of OEM Sales Ricky Cooper has told CRN that Broadcom is leveling the playing field for its OEM partners with a “reset” for Dell Technologies, Hewlett Packard Enterprise, Lenovo and others that will clear away 20 years of Byzantine agreements and thousands of SKUs in favor of simple, predictable pricing.

“It’s not fair on any of them,” Cooper told CRN of the way VMware’s past OEM deals were structured. “Because of historical relationships we've had with the likes of Dell, etc., you've got a myriad of different pricing. Nobody, I can tell you, has been on the same pricing. Everybody's different. We just need to hit the reset button and say, ‘OK, I understand where we've been, but here's where we've got to be.’”

The CEO for another VMware partner, who did not want to be identified, said he expects customers to continue to face steep price increases even with new OEM agreements.

Ultimately, Broadcom feels it has the dominant market position and can demand the higher price points, which are currently running from 30 percent to as much as 500 percent, said the CEO. “There has been a lot of noise and frustration from customers about the price increase,” he said. “Customers feel VMware is not the same company they were before.”