Hedging Into Expected Broadcom Acquisition of VMware

IT decision makers are thinking differently since Broadcom moved to acquire VMware in 2022 and are uncertain how things will change after the deal is done, explains IT industry analyst Steve McDowell.

By Ken Kaplan August 30, 2023

There's doubt about the future of VMware under Broadcom, which is well-founded leading up to Broadcom’s estimated $69B acquisition of the IT virtualization pioneer, which is expected to close before the end of 2023. That’s according to Steve McDowell, principal analyst at NAND Research.

“If I'm deploying VMware, is that a safe bet moving forward?” he asked in a video interview with The Forecast, recorded prior to the European Commission and UK's Competition and Markets Authority (CMA) approval of the acquisition.

McDowell's apprehension stems from researching outcomes from Broadcom's previous acquisitions. He explained that since the acquisition was announced last year, IT leaders around the world are thinking differently about building their future on VMware technology.

“The products they (VMware) bring to market add value to IT organizations and help simplify their life,” McDowell said. “But at the same time…as this acquisition drags out, there are a number of questions around how safe my investment in VMware is.”

The deal is going through regulatory reviews and is expected to close in October. Broadcom stated it would incrementally invest billions “to better unlock customer value,” the deal has raised concerns across the IT industry about the future of VMware’s product research and development. Tech Target reported in late August that enterprises are staying on the sidelines with purchasing decisions until they see how the Broadcom merger affects VMware Tanzu.

"The Broadcom acquisition is a big factor for Tanzu, which in some ways negates any competitive advancements they make with the product," Gary Chen, analyst at IDC, told the trade publication. "Many customers are holding new investments with VMware, which disproportionally affects Tanzu as it's newer, until they see how the Broadcom deal works out."

McDowell said it’s unclear how Broadcom will fit VMware into its broader portfolio and how that will impact future innovation, product support and pricing. During the acquisition period, mounting uncertainty drove many employees to leave VMware.

“Broadcom has a long history of acquiring companies that they feel have reached kind of commodity level,” he said. “Is Broadcom going to take VMware from…an innovative kind of leading player in the industry and try to fit that into a broader portfolio?,” he wondered. “That's causing a lot of confusion…a lot of uncertainty not just among IT guys, but for those of us who track the industry and those around the industry.”

McDowell advised current VMware customers to “make sure you hedge a little and make sure that you're really safety-proofing your investment in those assets.”

He expects to see bumps in product roadmaps until and after the acquisition closes.

“I don't think VMware's going anywhere, but are they going to be the company that we thought they were two years ago? I'm not so sure.”

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Ken Kaplan is Editor in Chief for The Forecast by Nutanix. Find him on Twitter @kenekaplan.

Jason Lopez contributed to this story. He is executive producer of Tech Barometer, the podcast outlet for The Forecast. He’s the founder of Connected Social Media. Previously, he was executive producer at PodTech and a reporter at NPR.