Broadcom’s acquisition of VMware continues to prove itself a worthy purchase, even as the semiconductor giant has faced harsh criticism, and lost some customers, due to significant price increases.
The company this week announced its Q2 2025 results, revealing revenue growth of 20% year- over-year (YoY), to $15 billion. Net income, meanwhile, ramped up 124% YoY to $4.95 billion.
VMware is part of Broadcom’s infrastructure software business unit, which in Q2 2025 grew 25% YoY to hit $6.6 billion in revenue. In contrast, before the VMware purchase, quarterly revenue for the unit was about $3.4 billion. The earnings reflect a continued upward trend since Broadcom purchased the cloud computing and virtualization company.
“When Broadcom acquired VMware, it created some uncertainty in the marketplace regarding how it would approach the product portfolio and its channel partners,” said Matt Kimball, VP and principal analyst for data center compute and storage at Moor Insights & Strategy. “However, it was also adopting a product that had a fiercely loyal customer base that had built its data center management strategy around the VMware portfolio. VMware technology was (and is) the data center control plane for a lot of these customers.”
Move to VCF means some customers face huge price increase
Broadcom also highlighted its successful shift of customers to the new VMware cloud model. CEO Hock Tan said during an earnings call this week that 87% of VMware’s top 10,000 customers have signed up for the VMware Cloud Foundation (VCF) private cloud bundle, a subscription-based offering including virtualization, storage, and networking, that is higher-priced than VMware’s previous standalone licensing model. Broadcom no longer sells standalone VMware products.
“The question is this: are 87% of the top 10,000 customers investing in VCF to embrace it to its fullest extent?” Kimball asked. “Or did 87% sign three year (or so) license agreements while they plan an exit strategy? I think there are some of both in that 87%.”
The company is “more than halfway” through the renewals, Tan said, adding, “we probably have at least another year plus, maybe a year and a half to go” in transitioning major accounts to VCF. Most of Broadcom’s VMware contracts are for about three years, which is “very traditional,” he said.
The move to the VCF subscription model was intended to simplify the number of VMware products and options, but it also means that customers may have to pay for items they don’t otherwise want, need, or use, and they can’t access products that were once a la carte, such as NSX Networking or vSAN, unless they purchase a bundle.
This has come at significant cost. According to some claims, pricing has increased anywhere from 150% to 500%, leading some customers to look elsewhere.
Considerations moving forward
Kimball said he didn’t expect a massive exodus when the VMware acquisition closed and the market hysteria began. Moving away from a platform so “deeply entrenched” in IT operations is “not for the faint of heart, nor is it a quick exercise,” he said.
“Do I think VMware will keep all of its customers? Certainly not,” Kimball said. “While the company says it has not increased pricing, the licensing changes implemented numerous times have effectively done just that: Increase prices.”
However, Tan did present a “compelling vision” of the private cloud with VCF 9.0, announced at VMware Explore in 2024, and made the smart move to present Broadcom as customer 0, he said. “It showed the real value of private cloud across a large enterprise with many business lines.”
Still, Kimball predicted, there’s likely to be migration (and probably already has been) among smaller organizations and those that have not built as much muscle memory around the VMware portfolio.
Large organizations, on the other hand, are going to be more thoughtful, he said. Responsible IT executives are likely to be asking themselves questions like: ‘What is the cost of moving away?’ ‘What is the benefit of moving away? ‘What is necessary to migrate to a Nutanix or Red Hat?’
Leaders weighing their future with VMware should do their due diligence, and map out a longer-term plan considering how the public cloud plays into their business, Kimball advised. It’s also important to fully consider the impact of AI and AI agents, which could have a potentially significant cloud component.
“What does an enterprise with hundreds of thousands — maybe even millions — of [AI] agents look like? Do you trust your current vendor is the right vendor to build your agentic environment around?” he asked, noting that this isn’t just a discussion around VMware, it’s general long-term strategic planning as AI disrupts the enterprise.
Vendor lock-in is another important factor. “Especially in today’s world, vendor lock is not a good thing,” Kimball noted. IT execs want openness and easier off-ramps.
Kimball highlighted three long-term considerations for companies:
- Does VMware share your vision of the future as it relates to the cloud, AI, and whatever follows?
- Is deploying VCF to its fullest extent going to lock you into VMware in a way that is “impossible to untangle?”
- Is VCF designed on principles of openness in a way that aligns with your technology and business needs?
Ultimately, Kimball predicted, “some will make a move, some will stay, depending on long-term business goals and requirements and whether VMware’s vision aligns to the organization.”
Source:: Network World