Dell Nixes VMware Distribution Deal, Solutions Remain Part of Portfolio

The distribution deal began more than two years ago.

Edward Gately, Senior News Editor

January 31, 2024

4 Min Read
Dell cuts VMware distribution deal

Dell Technologies has terminated its distribution deal with VMware after Broadcom's $61 billion acquisition of the company,

The commercial framework agreement, which began Nov. 1, 2021, provided a framework for various commercial activities between the two companies. That includes how Dell will act as a distributor of VMware products and services, as well as how the parties collaborate on certain solutions and go-to-market activities.

Dell disclosed the termination of the distribution deal in a U.S. Securities and Exchange Commission (SEC) filing.

“On Jan. 25, Dell Technologies delivered to Broadcom written notice of termination of the commercial framework agreement … by and between [Dell] and VMware,” it said. “The agreement provides that upon a change in control of either party …  the other party may terminate the agreement upon 60 days’ written notice. A change in control of VMware occurred upon the acquisition on Nov. 22 of VMware’s successor, VMware by Broadcom.”

The agreement was for five years with automatic one-year renewals. Either party could terminate this agreement by providing at least 180 days’ written notice to the other party prior to the end of the initial term or the then-current renewal term.

Broadcom an 'Important and Valued' Partner

Dell sent us the following statement:

“Broadcom and VMware solutions remain a part of Dell’s portfolio of products, including embedded solutions such as VxRail and Carbon Black. Broadcom is an important and valued partner of Dell Technologies, and we will continue to deliver value to our customers and partners who select Broadcom and VMware solutions."

In November of 2021, Dell completed the spinoff of its 81% equity ownership of VMware. At the time, Dell said the two would “retain a strong and unique commercial agreement that preserves the most valuable parts of the companies’ relationship.” This included the co-development of solutions, and alignment on sales and marketing activities.

Big Implications

Alastair Edwards, chief analyst with Canalys, said this move has big implications. Dell is VMware’s largest global distributor. It accounted for close to a third of VMware's total revenue last year (excluding OEM), and distribution was the biggest part of that. This has been a source of constant frustration for VMware’s other major distributors – particularly TD Synnex and Arrow – since Dell was officially appointed as a VMware distributor in 2018. So they will be among the biggest beneficiaries of this move. They lost a big chunk of business to Dell, which also gained a significant competitive advantage as a result of its scale.

Canalys' Alastair Edwards

“Canalys expects Broadcom to introduce a new focused distribution model globally, effectively outsourcing ownership of VMware’s second-tier channel to a single distributor in a region or major market,” he said. “TD Synnex and Arrow are most likely to be winners from this new model, if confirmed. Dell as a distributor doesn’t align this model, as it focuses predominantly on serving its own channel partners.

This could be a clear sign that Broadcom is set on bringing Dell’s elevated relationship with VMware to an end since closing its acquisition, Edwards said.

“Note that Broadcom also terminated Dell as an OEM partner, along with all other OEM partners, at the start of January,” he said. “That will significantly level the playing field for VMware’s other OEM partners (which typically found themselves at a pricing disadvantage to Dell) as and when Broadcom agrees new OEM contracts. Yet it’s not clear if it was Dell or Broadcom that drove this move. From a volume perspective, VMware has the most to lose from this. With the turmoil engulfing VMware’s channel since Broadcom completed the acquisition, and the shift from perpetual licensing to subscriptions, Dell may well be sending its own signal about ending its close allegiance with VMware. Dell could now focus its attention on other alliance partners such as Nutanix or Red Hat, which offer a less volatile and uncertain future business opportunity.

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About the Author(s)

Edward Gately

Senior News Editor, Channel Futures

As news editor, Edward Gately covers cybersecurity, new channel programs and program changes, M&A and other IT channel trends. Prior to Informa, he spent 26 years as a newspaper journalist in Texas, Louisiana and Arizona.

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