As firms abandon VMware, Broadcom is laughing all the way to the bank

Ingram Micro the latest to ditch VMware, but VMware's still making money.

Another company has publicly cut ties with Broadcom's VMware. This time, it's Ingram Micro, one of the world's biggest IT distributors. The announcement comes as Broadcom eyes services as a key part of maintaining VMware business in 2025. But even as some customers are reducing reliance on VMware, its trillion-dollar owner is laughing all the way to the bank.

IT distributor severs VMware ties

Ingram is reducing its Broadcom-related business to "limited engagement with VMware in select regions," a spokesperson told The Register this week.

"We were unable to reach an agreement with Broadcom that would help our customers deliver the best technology outcomes now and in the future while providing an appropriate shareholder return,” the spokesperson said.

Losing business with the second-largest IT distributor would seem consequential. However, Broadcom suggested that it doesn't view Ingram as a good fit for VMware. In a statement regarding Ingram, Broadcom pointed to its own "evolving business priorities" and said that "the need for a more streamlined and focused distribution network... necessitated this change."

Broadcom business wasn't material to Ingram's revenue, a rep said. They added that the firm distributes technologies from 1,500 vendors to 161,000 customers.

There’s debate as to whether Broadcom was truly able to provide Ingram with the VMware support it needed to effectively provide VMware services or whether Ingram wasn’t up to the task. One anonymous CTO at an unnamed VMware channel partner told IT publication CRN this week that "distributors are not the issue. Broadcom is."

"They need to empower their distributors to be able to make quotes or Broadcom should double their sales force if they want full control of every quote that is requested by a partner or end user.… The average is four weeks from deal [registration] and request to [distributor] for a quote,” the CTO said.

The exec claimed that this process could take “two to three days” before Broadcom closed its VMware acquisition in November 2023.

The CTO's comments align with what Ars Technica has heard from customers and partners that say long quote times have hurt business and that the quality VMware support has worsened since Broadcom's takeover.

However, The Register said it heard of Ingram struggling “to handle the increased responsibilities it assumed," citing VMware users who it spoke with.

Overall, changes in what Broadcom wants from VMware partners and customers have led to various firms scaling back VMware relationships, reducing reliance on VMware tech, and/or investigating alternatives to VMware, including moving some workloads to rival offerings, diversifying vendors, and devirtualizing.

But with how much money Broadcom's making, it’s likely okay waving goodbye to some of that business.

Trillion dollar company

Broadcom’s recent $1 trillion valuation is largely related to Broadcom's expectations of AI representing $60 billion to $90 billion in revenue come 2027. To reach its goals, it will need to evolve over the coming years. That doesn’t leave room for some of VMware’s older—and often smaller—relationships that don't fit or won't evolve with Broadcom.

Broadcom's fiscal 2024 earnings report indicates VMware revenue has been growing. Broadcom’s full-year software revenue grew by $13.8 billion to reach $21.5 billion during its fiscal year. VMware made $13.4 billion in revenue in its last year before acquisition, and it's expected that at least a few hundred million in VMware revenue isn't accounted for in Broadcom's full-year numbers.

During a call with investors last week, Broadcom CEO Hock Tan said that VMware operating margins were less than 30 percent before Broadcom’s acquisition but reached 70 percent in fiscal Q4 2024. VMware’s operating costs are also lower under Broadcom, declining from an average of $2.4 billion per quarter pre-acquisition to $1.2 billion in fiscal Q4.

Also, VMware’s annualized booking value (ABV) increased from $2.5 billion in Q3 to $2.7 billion in Q4. Broadcom has taken a lot of heat for bundling VMware products into a small number of SKUs, but Tan said the company added “4,500 of our largest 10,000 customers” to the VMware Cloud Foundation platform. Broadcom expects VMware revenue to grow 41 percent year-on-year to $6.5 billion in fiscal Q1 2025 and VMware ABV to reach $3 billion.

2025 challenges

Broadcom seemed okay with ending business with Ingram, which ties it to solution providers that may be supporting smaller firms. At the same time, Broadcom has shown willingness to fight for the business of large accounts.

For example, this month it settled an increasingly nasty dispute in which AT&T sued Broadcom for allegedly breaking a contract to provide perpetual license support. Broadcom infamously stopped VMware perpetual license sales, in favor of subscriptions, in December 2023.

Broadcom is also paying close attention to VMware’s biggest accounts, taking over 500 of those biggest accounts directly, thereby barring channel partners from deals.

Broadcom originally planned to take VMware’s biggest 2,000 accounts direct. But as Canalys chief analyst Alastair Edwards put it, letting 1,500 of the biggest accounts be run by channel partners helps tie professional services to VMware products, making migrations harder.

However, the VMware channel is under turmoil, having undergone numerous business-impacting changes over the past year, including Broadcom killing the VMware partner program in favor of its own, while announcing that there will be a new VMware channel chief, as CRN reported. Some of the resellers that could help VMware keep customers are showing frustration with the changes and what the characterize as poor communication from Broadcom.

“Broadcom has abandoned the channel market by making it nearly impossible to work with them due to constantly changing requirements, packaging and changes to the program," Jason Slagle, president of Toledo-based managed services provider and VMware partner CNWR, told CRN today.

Meanwhile, Forrester analysts Michele Pelino and Naveen Chhabra predict that next year, "VMware’s largest 2,000 customers will shrink their deployment size by an average of 40 percent," in favor of "public cloud, on-premises alternatives, and new architecture."

Still, "Broadcom’s price increases and cost-cutting measures are expected to boost its net profits, as there are not many credible competitors capable of helping clients replace VMware virtualization," the Forrester analysts said.

So although Broadcom is challenged to maintain business from VMware's biggest accounts and appease the solution providers driving smaller accounts, it's expected to keep making money off of VMware—even as firms like Ingram close the door on it.

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