Broadcom’s VMware alterations include layoffs, changes to partner programs

Broadcom finally closed its acquisition of VMware in November after 18 months of various governments slow-walking the approval process. Now it’s making a series of changes, including layoffs, that may prove painful.

Layoffs aren’t a surprise, as Broadcom wasn’t quiet about plans to cut headcount. Broadcom management said in a mid-2022 town hall meeting that they wanted VMware to become “lean and flat.” Broadcom hasn’t said how many people will be affected, but so far, the cuts include 1,267 VMware employees referenced in a December filing with the California Employment Development Department.

A former VMware employee who is among those let go spoke to me on the condition of anonymity and said it is mostly senior salespeople who have left or are leaving. The former staffer also expects that the corporate cultures of the two firms will clash.

[ Related:  Customer concerns loom as VMware Explore event approaches ]

One potential issue is Broadcom’s stance on remote work: VMware allowed employees to work from home, but Broadcom is all about getting employees back to the office. Broadcom CEO Hock Tan reportedly said to VMware employees that only salespeople and employees who live more than 60 miles from a VMware office could work remotely. “Any other exception, you better learn how to walk on water, I’m serious,” Tan said, according to an article in SFGATE.com that cites the Silicon Valley Business Journal.

Steve Tuck, CEO of cloud systems vendor Oxide Computer, didn’t believe the quote at first. “That’s not something you would say if your objective is to kind of quell fears,” Tuck said. “But that is what he said, and [it’s] really pretty surprising.”

Expect VMware layoffs, product cuts

Steven Elliot, group vice president of infrastructure software at IDC, says the layoffs and consolidation are a good and necessary thing. He notes that Broadcom is not only cutting staff but also cutting products to focus on core competency.

[ Related: VMware Explore 2024: Latest news and insights ]

“As companies grow larger and larger, they create a lot of complexity internally, across different business functions. What Hock brings to the table is not only a lot of experience and understanding of how to drive efficient operations, but also a lot of clarity with regards to the financial objectives and what customers should expect down the road. There’s a level of simplification and focus,” Elliot said.

Changes to partner programs and licensing models

Broadcom is transitioning VMware’s licensing model from perpetual software licenses to annual subscriptions, although this process began about a year before the acquisition. It ended VMware’s partner program and is moving customers to an invite-only Broadcom Advantage Partner Program, effective February 5, 2024. All VMware partner incentive programs will end on or before February 4, 2024, according to a letter sent to partners and posted on a Reddit board for VMware users.

A Broadcom spokesperson issued the following statement: “Broadcom remains committed to creating value within our combined ecosystem, which has been made stronger with the addition of VMware partners. Effective February 5, 2024, Broadcom will be transitioning VMware’s partner programs to the invitation-only Broadcom Advantage Partner Program. Based on recent discussions with hundreds of partners globally, this transition will help our partners achieve even greater opportunities for profitability through simplified bundled offerings and more opportunities for service revenues.”

Will customer defections come to fruition?

Before the deal even closed, Forrester Research estimated that up to 20% of VMware’s enterprise customers were planning to at least look into switching to a new virtual machine stack in the coming year.

While the confusion around VMware has been good for Oxide’s business, Tuck said most VMware customers are under long-term contracts and likely couldn’t get out of them too soon. He added: “I think every VMware customer is evaluating what’s the right strategy. And I think their findings of what the alternatives are, what the path to those alternatives are, are going to result in what percentage of those customers end up actually moving. But I think that feels like a conservative estimate,” he said.

IDC’s Elliott, meanwhile, said the opposite is happening. “There are customers that have actually already renewed [contracts]. They renewed after the deal was announced. And they’re renewing their license agreements after it has closed. So there are a lot of customers that are moving forward,” Elliott said. 

Tuck said VMware has raised prices a lot over the years, while the innovation that VMware has delivered has plateaued. “There’s a lot of latent frustration out there with VMware,” he said.

Tuck declined to predict what would happen in the future as a result of senior talent defections and talent rebuilding efforts within the company, but he said all these actions are part of the Silicon Valley lifecycle. “This is the kind of forest fire that is productive and necessary for the healthy forest of innovation in Silicon Valley.”