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Assessing the Impact: Broadcom’s $69 Billion VMware Acquisition

Broadcom, a global infrastructure technology leader under the CEO Hock E. Tan, attained a $69B of VMware, as stated in the Forbes article. There are benefits for Broadcom shareholders, but uncertainty among VMware customers.

The President and Chief Executive Officer of Broadcom, Hock Tan, stated in the PRNewswire article: “We are excited to welcome VMware to Broadcom and bring together our engineering-first, innovation-centric teams as we take another important step forward in building the world’s leading infrastructure technology company. With a shared focus on customer success, together we are well positioned to enable global enterprises to embrace private and hybrid cloud environments, making them more secure and resilient. Broadcom has a long track record of investing in the businesses we acquire to drive sustainable growth, and that will continue with VMware for the benefit of the stakeholders we serve.”

The main strategy to promote revenue is changing VMware’s business model from a perpetual license to a subscription based one, providing a more stable revenue stream and following the industry’s trends.

Tom Krause, president of the Broadcom Software Group, described the company’s plan to improve VMware’s contribution to its pro forma EBITDA. The aim is to reach about $8.5 billion within three years. The subscriptions are the crucial step in reaching this goal.

Along the way, the subscriptions model could slow down growth due to the contract changes. Growth is expected over the next three years. The slowing down could affect VMware’s customer relationships, as they might refuse the shift to subscriptions, which are generally thought of as more expensive.

The company will focus on creating a global private and hybrid cloud environment for large companies, which will be accomplished by selling VMware’s end-user computing portfolio and its Carbon Black security software unit, as well as application publishing, and mobile device managment.

The total number of VMware employees worldwide is around 38,300. At least 2,837 VMware employees will be laid off due to ‘economic’ reasons, while the official specifics are not provided.

Broadcom aimes to focus completely on cloud environments, while following the industry trends. The layoffs may have an impact: reduced forces could mean the risk of poor execution in market perception.

Broadcom’s management of VMware in the upcoming fiscal year is an important test for its strategic vision for enterprise software dominance. Broadcom is prioritizing the financial side of the acquisition, but its commitment to VMware customers remains uncertain. IT organizations should proceed cautiously, as minimizing risk is their top priority in enterprise IT, until things become more certain.

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