Chip giant Broadcom has posted impressive Q4 and fiscal year results, citing strong VMware growth following an acquisition posed significant early challenges.
Earnings for Broadcom’s full fiscal year saw revenue increase by 44% year-over-year to a record $51 billion. Infrastructure software revenue also grew to $21.5 billion, according to CEO Hock Tan.
The firm has seen a positive reaction to this earnings call, with a surge in share price skyrocketing Broadcom to a $1 trillion market cap alongside firms such as Apple and Microsoft.
While not all of this growth is attributable to its acquisition of VMware, Tan cited the “successful integration” of the virtualization software provider during the company’s earnings call last week.
“The integration of VMware is largely complete, revenue is on a growth trajectory, and operating margin reached 70% exiting 2024,” Tan said.
“Since closing the acquisition just over a year ago, we’ve signed up over 4,500 of our largest 10,000 customers for VCF (VMware Cloud foundation),” he added.
The push to VCF has been a big part of Broadcom’s messaging post-acquisition. As Broadcom EMEA CTO Joe Baguley told ITPro in November, the firm has been focused on putting the subscription price changes in a positive light.
That’s because, under the new pricing model, customers gain access to the entire suite of VMware products in VCF under a single licensing fee.
The integration of VMware within the Broadcom domain hasn’t been without its challenges, however. Customers expressed serious concerns in the wake of the acquisition. Concerns voiced by customers centered around the firm’s shift away from a perpetual license setup, which critics claimed could increase prices.
Research from UK cloud firm CIVO found that more than half (51.9%) of VMware customers were considering ditching services.
Gartner found a similar trend among customers, predicting an increased level of ‘devirtualization’ in the industry, defined by moving workloads away from virtualized platforms such as VMware.
Broadcom’s VMware success in context
Broadcom’s push to VCF is a strong move, according to CCS analyst Bola Rotibi, though the numbers Tan presented suggest there is still work to be done - less than 50% of the biggest customers have moved onto the platform.
“That's the biggest customers. So whilst it's a great number, it's still not a brilliant number, not the best number,” Rotibi told ITPro.
Overall though, Broadcom's strategy is a smart move, Rotibi added. Customers ultimately want simplicity, she said, and that’s what Broadcom is offering in its reshaping of VMware.
“If Broadcom has simplified the offering, and what they're saying is that ‘here's the payment’, the question then is on the user to say, ‘Well, okay, are we utilizing it effectively,?’” Rotibi said.
Broadcom’s gameplan
Broadcom has been able to cut costs to create margin improvements according to Tony Harvey, Senior Director at Gartner. Whether this will have a long-term improvement on product development is yet to be seen though, he told ITPro.
“They have also been successful in moving customers onto the VCF platform generating more revenue,” Harvey said.
Customers who have been able to ditch VMware are often the smallest and least profitable customers, Harvey said. Large enterprises moving away from the platform would be faced with much larger projects and there may be little revenue benefit in doing so.
“As such those organizations who are planning to migrate will renew with VMware – most likely for 3 years - and any revenue impacts will not be seen until the next renewal cycle,” Harvey said.
“Note that there is also a strong tie with Hardware refresh cycles as well as in many cases new hardware may be required to be the migration target,” he added.
“Broadcom is very much focused on its largest and most profitable customers and while smaller customers may move to other vendors, this will simply be regarded as cost of doing business by Broadcom.”
