Broadcom Predicts More 'Dependence' on Channel Partners Post-VMware Merger

Broadcom partners will take on a greater role for the semiconductor and software provider following Broadcom's massive acquisition of VMware.

The chipmaker in its annual fiscal year (ended Oct. 29) report, filed on Friday, stated that it expects its "dependence on channel partners will increase" after the Nov. 22 closing of the deal.

Although Broadcom attributed the increase in channel business to its $61 billion acquisition of software giant VMware, Broadcom's reliance on indirect sales has steadily increased over the years. Distributors accounted for 57% of Broadcom's net revenue in fiscal year 2023. That's an increase from 56% in 2022, 53% in 2021 and 42% in 2020, according to previous annual reports.

And some partners say they're looking to do more with Broadcom. A poll from Channel Futures sister company Canalys found that 35% of VMware partners said Broadcom will "add strength" to their business. However, 17% said they expect their business with VMware to decrease following the Broadcom integration.

Leading VMware, Broadcom Partners

And who is Broadcom's biggest partner? Taiwan-based semiconductor distributor WT Microelectronics has held the top spot for a number of years. WT Microelectronics accounted for 13% of net revenue in 2020, 18% in 2021, 20% of net revenue in 2022. That share continues to grow, with WT contributing to 21% of Broadcom net revenue in fiscal year 2023.

Moreover, aggregate sales to Broadcom's top five customers adds up to about 35% of its net revenue. That includes Apple, which added up to about 20%.

VMware's fiscal year 2023 (ended Feb. 3) report showed the depth of its relationship with former owner Dell. In the first half of 2023, 38% of consolidated VMware revenue came through "various route-to-market relationships" with Dell. In some cases the vendors were selling a joint solution, Dell was distributing VMware products to "other non-Dell Resellers" or was buying VMware products for internal use. No other distributors comprised more than 10% of VMware's consolidated revenue, according to the company's final quarterly earnings.

Broadcom Revenue

Broadcom in its annual report stated that its overall net revenue increased from $33.2 billion in fiscal year 2022 to $35.8 billion in fiscal year 2023. At present, net revenue in Broadcom's semiconductor business ($28.2 billion) dwarfs its infrastructure software business ($7.6 billion), which contains companies like Symantec, CA Technologies and now VMware.

Infrastructure software net revenue grew 3% year-over-year, compared to 9% semiconductor growth.

Broadcom Restructuring

Broadcom has disclosed more than 3,200 layoffs and redundancies across the globe, with many more to come. Different U.S. state labor agencies have confirmed 2,919 job cuts.

Broadcom noted in its Q4 earnings release that it expended to incur about $1.3 billion in charges related to "cost reduction activities" over the next two years related to the VMware merger.

Broadcom stated in its annual report that its restructuring costs totaled $36 million in 2021, $55 million in 2022 and $149 million in 2023.