Broadcom posted robust VMware-led earnings for its most recent quarter and expects even more from that deal going forward, shrugging off concerns over Broadcom’s ability to grow that business despite ongoing customer unrest.

Broadcom’s software infrastructure business, which is where VMware now lives, scored $5.8 billion in revenues during the fourth quarter of Broadcom’s fiscal 2024. That was a 196% increase from what Broadcom generated from that division during the same quarter last year, which was also Broadcom’s last quarter of earnings before it closed on the VMware deal.

Broadcom CEO Hock Tan said the vendor booked 21 million total CPU cores during the latest quarter compared to 19 million cores posted in the previous quarter, highlighting Broadcom’s expanding VMware business. More significantly, Tan said that 70% of those new booked cores were on its flagship VMware Cloud Foundation (VCF) platform, “virtualizing the entire data center.”

Tan also noted that Broadcom had signed up 4,500 of its largest 10,000 customers to its VCF platform, and that the platform generated $2.7 billion in annualized booking value (ABV) during the latest quarter. Those numbers are significant improvements from the 3,000 resigned customers and $1.9 billion in ABV Tan noted during the vendor’s Q2 results.

Broadcom maintaining VMware customer loyalty … That retention and return is significant for Broadcom as it counters concerns over customers potentially fleeing VMware following license and pricing changes implemented by Broadcom post-acquisition.

Broadcom rivals have conceded that the vendor is doing a good job in stemming the near-term outflow of large VMware customers.

Nutanix CEO Rajiv Ramaswami during that vendor’s latest earnings call downplayed near-term benefits from VMware customers potentially migrating their operations to Nutanix’s platform, noting that the opportunity remains a multiyear trajectory.

“The market continues to be dynamic, but from our perspective it’s still largely unchanged in terms of our opportunity, multiyear opportunity to gain share,” Ramaswami said in response to questions from financial analysts. “We haven’t seen a significant change in that this quarter compared to the last several quarters really. And we haven’t seen any real meaningful changes in our win-loss rates either on these opportunities.”

Ramaswami said that the “unchanged” progress is often tied to current VMware renewal cycles.

“They’re tied to when the installed base is coming up for hardware refresh, although we are also expanding our ability to capture, to have our solutions work on existing hardware,” Ramaswami said.

Ramaswami had previously noted Broadcom’s willingness to show pricing flexibility when dealing with larger customers, and Broadcom has more recently enhanced features and benefits on some of VMware’s slimmed down product offerings.

“It’s a dynamic market in the sense that sometimes we’ll see aggressive behavior from Broadcom as well to keep those customers, especially the very large ones,” Ramaswami said. “So really, I would say net-net, nothing much has changed.”

Broadcom has also moved to shore up loyalty to its less intensive VMware data center virtualization platforms. This includes a recent bolstering of its vSphere hyperconverged infrastructure (HCI) platform and bringing back the vSphere Enterprise Plus name as a new option for its vSphere Standard product.

Prashanth Shenoy, VP of cloud platform, infrastructure, and solutions marketing at Broadcom, during a press briefing that the vSphere updates help layer the vendor’s services.

“We have provided a wide variety of offering for customers of various sizes and where they are in the journey,” Shenoy said of the new layered approach. “If they want a full private cloud platform, they go with VMware Cloud Foundation. If they want an enterprise-class HCI hyperconverged infrastructure platform they can go with vSphere Foundation. Or if they just want to start with compute virtualization they can go with vSphere Enterprise Plus or vSphere Standard.”

… for now Despite the success, analysts continue to note long-term customer retention challenges.

Equity research firm William Blair in a recent Nutanix report mentioned that market research firms were predicting up to 30% of VMware’s installed base of more than 400,000 customers “will eventually switch away from VMware.” That sentiment was echoed by Forrester Research Principal Analyst Naveen Chhabra who told SDxCentral up to 20% of the world’s largest enterprises “will start to exit – read these words very carefully – will start to exit the VMware stack.”

“They will not do a full replacement overnight, but in parts, they will start to move away,” Chhabra said. “I clearly see that happening right now and I don’t need to go another five months to claim that that prediction was true. It is happening.”

Nutanix during its most recent quarter managed to add 630 new customers, with William Blair analysts noting in a report “Nutanix seeing steady VMware displacements amid high customer dissatisfaction.”

Nutanix is among a number of vendors that have been looking to take advantage of Broadcom’s changes at VMware.

IBM CFO James Kavanaugh recently told an investor conference that its Red Hat division was positioned to receive some of that potential flow of dissatisfied VMware customers, though the timing could extend out for several years.

“What it’s forcing right now with the Broadcom acquisition is it’s forcing every enterprise client to make platform architecture decisions, and that’s going to be between virtualization and containerization,” Kavanaugh said, touting IBM’s consulting services, its Watson X generative artificial intelligence (genAI) platform, and Red Hat OpenShift. “That’s why clients are coming to us with extreme interest around a growth factor that I think will play out for multiple years, and we’re excited about that.”

This timing aligned with a recent William Blair enterprise survey that found “while the vast majority of customers have ponied up with VMware at least for another year (due to immediate challenges in shifting off), many customers and channels feel burned by Broadcom,” adding that this has led to disgruntled customers looking at near- to mid-term alternative offerings from vendors like Nutanix, Red Hat, Microsoft, Scale Computing, and public cloud providers.

Broadcom ups VMware expectations Despite those concerns, Broadcom remains bullish on its VMware boost.

Tan said operating margins hit 70% at the end of its fiscal 2024, and that Broadcom expects to deliver segment adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) “that significantly exceeds the $8.5 billion we communicated when we announced the deal. We're planning to achieve this much earlier than our initial target of three years.”

Broadcom is boosting this margin gain by slashing VMware’s expenses. Tan said that VMware spending dropped $100 million sequentially to $1.2 billion in Q4, which was half of the $2.4 billion VMware was spending per quarter before being acquired.

Broadcom is also forecasting that its infrastructure software business will grow 11% sequentially for Q1 of its fiscal 2025, and a more robust 41% year over year.