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The majority of VMware partners responding to a new Candafero poll indicate they're looking to take their business to multicloud and virtualization competitors ASAP in the wake of Broadcom's channel decisions.
January 19, 2024
Seventy percent of VMware partners are actively turning to the multicloud provider’s competitors as Broadcom slices and dices its new acquisition, causing turmoil within the channel.
The figure comes from the results of a new Candafero poll, which netted responses from 330 partners between Jan. 11 and Jan. 17. Candafero serves as the online channel partner community run by research firm Canalys, a Channel Futures sister company.
Meanwhile, 50% of VMware partners “urgently want to dump Broadcom,” as Jay McBain, chief analyst at Canalys, put it.
“Unprecedented,” he added.
The poll results reflect just how VMware partners are viewing Broadcom’s moves around the $61 billion acquisition ($69 billion when accounting for debt). Less than a week before Christmas, Broadcom told VMware partners it would terminate their channel program, transitioning some to its invitation-only Advantage program starting this month. Myriad reports indicate that only VMware partners bringing in $500,000 or more revenue will get those invitations.
On top of that, Broadcom has decided to take the top 2,000 VMware clients direct, out of the hands of the VMware partners who sold to and service those customers.
That move alone raises questions about Broadcom’s understanding of the power of the indirect channel. A report from McKinsey & Co. shows that every VMware customer leans on seven trusted partners, which creates huge ripple effects, McBain told Channel Futures for our piece, “All Is Not Lost: Vendors Rescuing VMware Partners Stranded by Broadcom.”
“One or less of those seven may ever collect money on behalf of VMware as a reseller type, but the other six are doing the consulting, the design, the architecture, work, implementation, integrating managed services; they're doing everything else,” McBain said. “And if you don't have a strong channel strategy, you're basically creating friction around the seven people that every one of your customers and prospects trust. And that's very ugly for the future of a product that relies on these … ecosystems.”
Overlooking that reality, focusing just on reselling, margins and financials could deal Broadcom some blows in the long run.
“I don't think they understand the broader picture,” McBain said for “All Is Not Lost.” “And this is the five- and 10-year view of doubling the size of VMware.”
“We are unique in how we engage with and support our partner ecosystem,” he wrote in one blog. “Often, commercial vendors will attempt to control how their partners conduct business. But at Broadcom, we empower partners to identify and pursue their own commercial strategies, so they can bring sales and services to end-user customers on their own terms.”
Yet the decisions Broadcom is making around VMware partners seem to go against Tan’s various proclamations of commitment. McBain, for his part, would leap at the chance “[t]o be a fly on the wall in Broadcom's strategy room right now.”
With VMware, Broadcom bought “a very product-sticky and partner-friendly company,” one with the ability to disrupt the likes of Citrix and Red Hat, McBain said, speaking to the results of the Candafero poll. VMware also showed positive growth prospects for the next decade, he noted.
But then Broadcom started dismantling VMware and chaos ensued. Recall, not only has the chipmaker taken the top 2,000 VMware clients and cut VMware partners it has decided will not prove profitable, it also has laid off thousands of people and introduced “meticulous expense management,” McBain said. Furthermore, Broadcom has decided to sell off the VMware end-user computing unit and Carbon Black, and rejiggered the VMware portfolio such that buyers are likely to be forced into paying for products they don’t want or need.
That all raises the question: What is Broadcom thinking?
McBain has some theories, starting with financials.
Canalys' Jay McBain
“After 18 months [Broadcom] will show flat-to-minor revenue decline, which they can attribute to acquisition risk,” he said. “Profit margins will effectively double.”
As such, those margins will start mirroring the 57% cash profit from operations that Broadcom overall generates, McBain explained.
Indeed, Broadcom has cemented a reputation for running as bare-bones a company as possible to squeeze out margins. It did that with the CA Technologies and Symantec purchases, too. Because of that, throughout the various acquisition milestones, VMware partners had feared Broadcom would do something drastic to them.
Investors love the kinds of returns Broadcom creates, though, and they will reward the company with a 15X valuation on VMware revenue, similar to Broadcom’s multiple, McBain said.
“Senior management will be hailed as business geniuses on magazine covers because they bought the revenue at 5X ($69 billion) and created material wealth for shareholders,” he added.
Again, however, Broadcom’s decisions seem to reflect a narrow view.
“[W]hen the book is written 10 years from now, the conclusion will be short-term thinking and a financial hack on capitalism (the rich get richer), resulting in the decimation of a legendary tech brand,” McBain explained.
Not only that, but in shunning much of the VMware partner channel, Broadcom seems to be demonstrating ignorance at best and hubris at worst.
“Go and sort the most valuable companies in the world and one thing jumps out — they are all platform companies (partner friendly and ecosystem orchestrators),” McBain said. “Broadcom either thinks they're smarter than Microsoft, Apple, Google, Amazon and others, or they are looking to get rich quick.”
Contributing Editor, Channel Futures
Kelly Teal has more than 20 years’ experience as a journalist, editor and analyst, with longtime expertise in the indirect channel. She worked on the Channel Partners magazine staff for 11 years. Kelly now is principal of Kreativ Energy LLC.
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