The dismantling of VMware by Broadcom continued today when the company announced it was selling its End-User Computing (EUC) Division to Menlo Park, Calif.-based KKR, a global investment firm, in a deal estimated to be worth US$4 billion.
The purchase by KKR includes Horizon, a desktop and application virtualization platform and Workspace One, a unified endpoint management platform for the enterprise.
News of the acquisition comes as no surprise, as Broadcom CEO Hok Tan, during the company’s Q4 2023 earnings call in December, stated the plan was to divest two VMware business units: End-User Computing and Carbon Black, a developer of endpoint security software.
In an advisory issued in early December, Forrester Research said that both EUC and Carbon Black, which has yet to be sold, represent a “small percentage of VMware’s overall business” and that the “spin-off will likely enable both companies to increase their independence, helping them to increase brand awareness, secure more R&D funding, and pursue strategies relevant to their respective markets.
“Additionally, both will potentially avoid or delay some of the negative consequences of a Broadcom acquisition, which Forrester expects will bring price hikes, degraded support, and a diluted value proposition for VMware products. A sale may eventually result in these impacts anyway, depending on the buyer, but for the time being, currently satisfied customers should hold steady with their investments.”
In a blog released this morning, Shankar lyer, senior vice president and general manager of the EUC Division, called the acquisition an “exciting new era” for the organization he oversees and “ultimately our customers and partners.”
KKR, he wrote, is an “ideal strategic partner with the experience and resources to help us achieve our potential as a standalone business.
“After the transaction closes, which is expected to occur later this year subject to customary closing conditions and regulatory approvals, the EUC Division will continue to be led by its existing management team.”
In the meantime, he added, it is “business as usual, and we continue to prepare for the acquisition with a focus on customer and partner continuity.”
It is certainly not business as usual for a host of partners and customers impacted by a decision by Broadcom to terminate its VMware Partner Program as of Feb. 5. That move has resulted in a number of vendors, including Scale Computing , a company that specializes in edge computing and virtualization services, reaching out to partners who would not have made the cut to Broadcom’s new invitation-only channel program.
In late January, it announced an initiative it called a VMware Rip and Replace Promotion, in which partners signing on receive a 25 per cent discount on its software and services, as well as free migration tool access.
The changes by Broadcom, the firm said in a release, “have led to palpable frustration among partners as well as customers, many of whom face a painful transition working with partners who will lose their status in Broadcom’s new channel program. Broadcom also announced the move to software licenses, meaning customers will soon see all VMware products sold on subscription and offered only in product bundles, potentially raising costs and forcing them to acquire software they do not need.”
During a webinar earlier this month, Jeff Ready, the co-founder and chief executive officer (CEO) of Scale, reflected on Tan’s business strategy, which will see 80 per cent of VMware revenue coming from their top 600 customers.
“Their focus is to drive the product, drive the pricing, drive everything towards those 600 and if you’re in that 600, maybe that’s fine,” he said. “But if you’re 601 through 100,000, that’s probably not great.”
Ready recalled talking to a partner about one of their customers, a not-for-profit children’s hospital. Its VMware licence renewed in January, and when the license renewal notice was issued, the pricing jumped from US$5,000 to US$42,000 a year, a figure that clearly had not been budgeted for.
“They reached out to their partner, the partner got the VMware rep, as well as the new Broadcom rep on the phone to discuss the situation and really to see if there might at least be a transition plan where they could get through a period of time and budget for whatever they needed to budget for. The partner related to me the answer they got from Broadcom was ‘we’re sorry but VMware is not for everyone,’ which is terrible.”
VMware as an organization, said Ready, was “built on the channel – (partners) taking the product, getting customers and making it a core part of their offering. To see just how the channel kind of gets tossed aside like yesterday’s garbage in this transition is difficult for me to watch. It is a great opportunity for Scale, but on a personal level it is painful.”