SAN JOSE - Broadcom (NASDAQ:AVGO) Inc. is making significant organizational adjustments following its $61B acquisition of VMware (NYSE:VMW), a move that has led to layoffs and the sale of various business units. The company, led by CEO Hock Tan, has revised VMware's licensing terms, an action that industry analysts believe could lead to higher costs for customers and possibly a degradation in service quality.
In a strategy that could reshape customer relationships, Broadcom has terminated existing partner agreements with VMware resellers and service providers. The new policy requires partners to reapply, a process that could particularly affect smaller partners and potentially impact the level of customer support. Despite these changes, substantial customer defections are deemed unlikely in the current economic environment, according to feedback from VMware User Group members.
The company is investing in VMware Cloud Foundation (VCF) and is looking to offload non-core divisions. There is a clear intention to transition customers from perpetual licenses to subscription models and to combine various software offerings into bundles. This shift has raised customer concerns regarding not only the potential increase in costs but also the anticipated quality of support.
Industry analysts have speculated that the changes in licensing terms and the new partnership policies might cause up to 20% of organizations to consider moving away from VMware's services in 2024. However, the likelihood of such a shift occurring on a large scale seems minimal currently, given economic constraints that may inhibit organizations from making significant IT infrastructure changes.
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