Broadcom’s VMware strategy pays off financially, but customers not as keen as Wall Street

To many attendees at this year’s VMware Explore conference, turnout felt smaller, there were fewer sessions than last year, and there were markedly fewer vendors on the exhibit floor. And, for all that Broadcom talked about how many enterprises have licensed VMware Cloud Foundation, few of those customers showed up to talk about it.

The single biggest customer announcement revolved around Walmart, but there were no Walmart executives speaking at the conference. An exec from Barclay’s appeared briefly in a video segment at the keynote. The only customer physically next to VMware executives on stage during the keynote was Jeremy Wright, the CIO of Grinnell Mutual, a 750-employee insurance company based in Grinnell, Iowa.

Wright explained that his company was able to save $1 million over five years by getting rid of traditional storage. Grinnell could do this because VMware’s storage virtualization tool, vSAN, which is part of VMware Cloud Foundation, allows the insurance company to make use of the attached storage that comes with its updated HPE servers. However, he did not say how much moving to VCF was costing them.

Broadcom is getting its money’s worth

The mood among VMware Explore attendees was dour, but Wall Street seems to be celebrating Broadcom’s moves.

Broadcom paid more than $60 billion for VMware in 2023. To make the purchase worth it, Broadcom embarked on what Forrester analysts call a harsh strategy: “Two years into Broadcom ownership, VMware is settling into its new normal — with the VMware Explore event bringing forth the first reported results on executing on a seemingly harsh but clearly stated strategy. If you are a Global 2000 company, VMware wants your business — from the rest, not so much,” the analysts wrote about the VMware Explore event.

According to an earnings report released Thursday night, Broadcom’s net revenues jumped sharply from 2023 to 2024, from $36 billion to $52 billion, marking the fastest increase in the company’s history. It achieved record third-quarter revenue of $15.95 billion, up 22% from the year-earlier quarter. In a conference call with investors, CEO Hock Tan attributed the growth to three things: AI chips, networking and VMware.

In the third quarter of 2025, infrastructure software revenues, which are mostly due to VMware, grew to $6.8 billion, a 17% increase compared to the same quarter last year. The reason? New subscription-based licensing that yields better operating margins.

How much better? In the three years prior to the Broadcom acquisition, operating margins hovered between 13% and 22%. Today, operating margins for Broadcom’s infrastructure software division are at 77%, Broadcom CFO Kirsten Spears told analysts at the company’s earnings presentation on Thursday. “This compares to operating margins of 67% a year ago, reflecting the completion of the integration of VMware.”

These are higher operating margins than VMware had ever achieved before, and significantly higher than average in the software industry as a whole. For many observers, this is a good thing.

“VMware is lean and focused for the first time in a long time,” Steven Dickens, CEO and principal analyst at HyperFRAME Research, tells Network World. The channel disruption and changes to licensing models are now in the rear-view mirror, Dickens says. “And the company is now laser-focused on innovation, delivering value to its clients and driving returns for investors. I am bullish on the long-term prospects for Broadcom as a whole and particularly for the VMware business unit.”

According to Broadcom’s Tan, over 90% of VMware’s 10,000 biggest customers did, in fact, decide to move to VMware Cloud Foundation.

With the new bundled subscriptions, some customers have gotten more than they were looking for, IDC analyst Jevin Jensen tells Network World. “But, regardless, they now have access to a unified private cloud platform,” Jensen says. “Broadcom’s focus for 2026 is on adoption and making the entire bundle sticky. VMware hypervisor has proven to be sticky itself. Now the goal is to make the fully private cloud a must-have for enterprises.”

The average renewal term is three years, he adds, so Broadcom has time to work with these customers to ensure they renew again.

According to critics, however, the primary beneficiaries of this unified platform are the largest enterprises, while smaller companies are seeing huge price increases without the benefits.

Tan seemed to acknowledge these concerns on the call Thursday night.

“Beyond the largest 10,000, are we seeing a lot of success? We’re seeing some,” Tan said, adding that the value of moving to VCF is much less for smaller companies. “We see the top 10,000 as where it makes a lot of sense, where they derive a lot of value in deploying private cloud using VCF. Now we are looking at whether the next 20,000, 30,000 mid-sized companies see it the same way.”

VCF is the real deal, says Matthew Kimball, an analyst at Moor Insights & Strategy. “It is a true cloud platform that I don’t see being matched in terms of functionality,” Kimball tells Network World. “There is a lot of value the company is delivering to its customers. The challenge is getting customers to actually consume VCF to its full potential. If they do, that value will be realized and the price paid will be easily justified. If not, if they simply want to consume the virtualization or virtualization management capabilities, VCF will seem to be overpriced.”

Meanwhile, just because a large customer has signed up for VCF doesn’t mean that they’re not upset about the price increases, nor that they aren’t planning to migrate off VMware in the future.

According to Gartner, as a result of the Broadcom acquisition, VMware’s share of the market will fall from 70% in 2024 to 40% in 2029.

According to a Rimini Street survey of 111 global VMware customers conducted in late 2024, 98% are already using, planning to use, or are considering VMware alternatives, and 36% have already made the switch. The reasons for looking for alternatives are mainly financial: 45% cite costs, 43% are worried about future price increases under Broadcom, 34% are dissatisfied with the quality of support, and 33% specifically cite the subscription licensing.

“We know of hundreds of companies that would love to sue Broadcom for predatory pricing,” Ray Wang, principal analyst and founder at Constellation Research, tells Network World. “These range across all industries from public sector to private and from system integrators and other ISVs. While VMware could have charged a little more for their products to pay for innovation, Broadcom jacked up prices from 50% to 400%. Some have even met with Hock Tan in person where he pretty much told them if you don’t like it, leave.”

The situation is particularly acute when it comes to critical industries like health care, he says. “This lack of empathy for the customer and pure greed by the Broadcom team is unprecedented.”

It’s not just smaller companies that are complaining about being steamrolled. AT&T, for example, said that it was looking at a 1,050% price increase with the new licensing model. And it did, in fact, go to court. AT&T’s lawsuit alleged that VMware was not fulfilling the terms of its previous license contract “in bad faith in an effort to squeeze AT&T for hundreds of millions in subscription fees for products that AT&T does not want or need.”

Other organizations that filed suit are the Dutch Ministry of Infrastructure and Water Management, Siemens, and Tesco. And, in July, the Cloud Infrastructure Service Providers in Europe filed a formal appeal challenging the European Commission’s approval of Broadcom’s acquisition of VMware, seeking an annulment.

“Since finalizing the acquisition, Broadcom has unilaterally terminated existing contracts – often with only weeks’ notice – and imposed onerous new licensing conditions,” the CISPE organization said. “These include drastic cost increases (sometimes exceeding tenfold) and mandatory multi-year commitments for access to essential VMware software. In July, Broadcom further escalated the situation by announcing new restrictive licensing terms that may exclude smaller cloud providers, including many CISPE members.”

According to the Rimini survey, there are several alternative vendors that VMware customers are exploring. Microsoft Hyper-V is in the lead, with 69%, followed by Oracle VirtualBox at 51%, Red Hat Virtualization at 48%, Citrix Hypervisor at 26% and Nutanix at 19%. In addition, 13% are looking at the hyperscalers, 11% are considering the open-source KVM platform, and 10% are considering Proxmox, which is also open source.

Data for migration to Microsoft Hyper-V, Oracle VirtualBox, Red Hat Virtualization and Citrix Hypervisor is not available, but Nutanix announced last week that it added over 2,700 new customers this past year, the highest in four years.

“This included organizations of various sizes and across several industries, and included over 50 Global 2,000 accounts,” said CFO Rukmini Sivaraman, in an Aug. 27 earnings call.

And there are plenty more where that came from, said Nutanix CEO Rajiv Ramaswami. “The fact that we’ve added, you know, 2,700 customers over the last year is a good sign that there are people moving,” Ramaswami told analysts. “But there’s 200,000 customers out there for VMware. So, there’s still a lot to go through here.”

Proxmox, an open-source virtualization platform, says it has more than 200,000 community members and 1.5 million hosts managed, as well as partnerships with Nvidia, Veeam, and more than 1,000 resellers in over 142 countries. In a statement in April, Proxmox said that 95% of VMware setups could migrate seamlessly to their platform.

Another competitor, edge-computing focused Scale Computing, recently announced that it had a 140% increase in new customers in the first quarter of 2025. “It’s clear that organizations are actively seeking VMware alternatives,” said CEO and co-founder Jeff Ready in an announcement in May. In July, the company was acquired by Acumera, an edge connectivity provider, and the combined company will be known as Scale Computing.

Then there’s the hyperscaler option. It’s not top of mind for many VMware customers looking to migrate, since people tend to go to something close to what they already know, says David Giambruno, managing partner at Ancilla, a digital transformation consultancy.

“For any of the alternatives to VMware, you’ll have to spend money on the change,” Giambruno says. “Will you spend the money to go to something you understand, or to something that is faster, better, cheaper?”

Giambruno has been on multiple sides of this issue in the past, he tells Network World. While a CIO at Revlon and at Tribune Media, he reduced IT costs by $70 million and $122 million respectively by moving the companies to VMware.

But then, in his next job as CIO of Shutterstock, he went the other direction, going from a VMware deployment and 6,000 servers in five data centers to fully cloud native environment. “There were cost savings and increased capabilities,” he says. “I think cloud native is the new best way to operate for a corporation, but it is not easy.”

Now as a consultant, he’s helped eight enterprise clients move to the cloud, saving them $780 million. “The average $10 million data center costs $2 million to operate in cloud native,” he says. “In cloud native, unless it’s running, I’m not paying for it. It’s like taking the VMware model and multiplying it by ten.”

Giambruno says he’s currently working with two clients, both of whom have been using VMware for years, who saw costs go up by “multiples” after the recent licensing changes.

But moving away from VMware isn’t easy, he admits, especially for the largest enterprises. “For highly complex systems that work super well and are well automated, the cost to move, the disruption, isn’t really worth it,” Giambruno says. “I think VMware is using that to their advantage.”

Meanwhile, the technology landscape is changing rapidly. Companies will soon be able to use AI to analyze business processes, remove wasted effort and optimize workflows, which will make large-scale automation even more impactful, Giambruno says.

If a company is already in the cloud, it will make the transition easier. So will having extra money to spend as a result of not having to pay VMware subscription fees and data center costs. “The last project I did, they saved $85 million,” Giambruno says. “That’s $85 million they can invest in AI.”

The hyperscalers are trying to make migrations easier. In May, Amazon announced an agentic AI tool for migrating VMware workloads, AWS Transform. Microsoft also offers an agent-based migration tool that can be used to migrate on-prem VMware VMs to Azure.

Editorial disclosure: Network World contributing writer Maria Korolov attended VMware Explore 2025 in person, and her travel costs were paid by Broadcom. The vendor-paid travel does not influence our editorial coverage.

Read more news from VMware Explore 2025:

• Broadcom touts AI-native VMware, but gains aren’t revolutionary: Broadcom’s VMware has taken on the AI mantle, declaring that the VMware Cloud Foundation platform is now “AI native.” In the big picture, however, Broadcom didn’t set the world ablaze with its announcements. They were all the obvious next steps for the company and do not move the needle forward on AI technology.
• Broadcom CEO urges cloud-to-on-prem repatriation: “Most of you continue to be weighed down by your infrastructure, and you’re afraid to move forward,” Broadcom CEO Hock Tan said in his conference keynote. “So how do you let go of your IT past so you can build for the future? Well, I can tell you for sure the answer is not to run straight to public cloud, as you did five, ten years ago. If you’re going to do cloud, do it right. Embrace VCF 9.0 and stay on prem.”
• How one midsize enterprise is making VCF work: Broadcom’s shift to all-in-one, perpetual licenses for VMware Cloud Foundation has infuriated customers and priced out some companies, but 750-employee Grinnell Mutual has managed to save money on the new platform.
• Broadcom tackles agentic AI security challenges: Broadcom announced new security enhancements for its VMware vDefend and VMware Avi products, which are part of the VMware Cloud Foundation Cyber Compliance Advanced Services. Upgrades include more security for agentic workflows, including model context protocol (MCP) servers, and support for post-quantum encryption, among other improvements.
• Broadcom and Canonical expand partnership, promising accelerated innovation: The combination of VMware Cloud Foundation and Ubuntu Pro offers enterprise-grade container-based and AI applications.
• Broadcom launches VMware Tanzu Data Intelligence and Tanzu Platform 10.3 to drive agentic AI: Broadcom is pushing its new data lakehouse platform as the answer to all an enterprise’s data challenges — or almost.
• As VMware Explore kicks off, customers are looking for VCF value: Despite grumbling by customers, as well as legal action against Broadcom on a number of fronts, there’s no indication that Broadcom CEO Hock Tan is wavering the least bit from his strategy. Broadcom’s pitch is that VMware Cloud Foundation (VCF) enables IT organizations to run a modern, virtualized, high-performance, highly automated, AWS-style cloud in an on-prem environment with all of the benefits that accrue.