Dell Technologies has terminated a distribution agreement with former subsidiary VMware just months after VMware was acquired by Broadcom. The move comes just ahead of the launch of a controversial new VMware partner program.

Dell in a Securities and Exchange Commission (SEC) filing wrote that it delivered a notice to Broadcom terminating an outstanding commercial framework for how Dell and VMware distributed and collaborated on “certain solutions and go-to-market activities.”

That agreement was initially established on Nov. 1, 2021, which was the date Dell Technologies completed its long-gestating spinoff of VMware into an independent company. That five-year agreement signed between Dell and VMware called for continued collaboration on several products, including their VxRail hyperconverged infrastructure (HCI) platform, VMware Cloud on Dell EMC, VeloCloud SD-WAN and other areas including security, telco and edge computing.

That agreement also included a “change of control” provision, which allowed either party to terminate the deal within 60 days of either party being acquired. That, of course, happened on Nov. 22, 2023, when Broadcom closed its $69 billion purchase of VMware. Dell’s SEC filing stated it provided Broadcom the termination notice on Jan. 25.

Broadcom converts VMware to new partner program

Broadcom is also on the precipice of rolling out a new partner program that does away with VMware’s long-standing efforts. The newly titled and invitation-only “Broadcom Advantage Partner Program” is set to launch on Feb. 5.

Broadcom is touting the program as a way to simplify interactions between VMware and its customers.

“Based on recent discussions with hundreds of partners globally, this transition will help our partners achieve even greater opportunities for profitability through simplified offerings and more opportunities for service revenues,” Broadcom notes in an FAQ.

However, not everyone is convinced.

“Broadcom’s invite-only partner ecosystem raises concerns about accessibility and inclusivity in the tech market,” remote desktop access platform provider Leostream noted in a blog post. “Restricting participation to a select group of partners could create a competitive disadvantage for other sub-enterprise-sized enterprises. This exclusive approach may hinder collaboration, innovation and diverse solution development. Smaller companies often rely on various technology partners to meet their complex needs.”

Leostream has initiated a “continuity program” to support former VMware resellers.

Broadcom squeezing revenues from VMware

These moves are the latest ripple for VMware following the Broadcom purchase.

Broadcom CEO Hock Tan told investors during the company’s most recent earnings call that Broadcom would be focused on converting its VMware customers as they come up for renewals with deeper software services on a subscription basis. Broadcom quickly moved on those plans by killing its perpetual license program in favor of subscription licenses shortly after the deal closed.

This initial move included the introduction of a “bring-your-own-subscription license option,” which Broadcom describes as “providing license portability to VMware-validated hybrid cloud endpoints running VMware Cloud Foundation (VCF).”

VCF was also reorganized into two primary offerings. The first slashes the previous subscription list price for the VCF offering in half while adding higher support service levels.

The second offering is a new VMware vSphere Foundation package that integrates vSphere with VMware’s intelligent operations management. Customers in need of hyperconverged infrastructure (HCI) support can purchase VMware’s vSAN as an add on.

Many standalone products are being mothballed

More recently, VMware announced end of availability for a handful of standalone products. This includes the Software-as-a-Service iteration of its Aria multicloud management platform and dozens of its vSphere, VCF, vCenter and NSX products.

Rick Walsworth, director of product marketing for VMware’s cloud infrastructure team, wrote in a blog post that existing customers of those impacted products would continue to receive support through their current contract terms. “In the future, at the time of renewal, you can work with your VMware representative or VMware partner to align your go-forward requirements to VMware’s updated portfolio of offerings,” he added.

The updates should also generate additional revenues for Broadcom. Tan has said Broadcom’s integration of VMware would take a year and cost around $1 billion in “transition spending,” but the effort will result in a combined entity that will generate $50 billion in revenue over the next year.

Focusing on the dollar signs

“We are now refocusing VMware on its core business of creating private and hybrid cloud environments among large enterprises globally and divesting non-core assets,” Tan told investors of Broadcom’s plans for its new acquisition.

Those divestitures will include VMware’s Carbon Black security business that it has already unhitched from VMware, and VMware’s End-User Computing (EUC) business. Those two sales are expected to generate $2 billion in proceeds.

“We’ll find good homes for them because there are a lot of very interested parties who are more than happy to take those assets,” Tan told investors.

Once divested, Broadcom expects its VMware-bolstered “infrastructure software” business to produce $20 billion in revenues for its fiscal 2024, which puts it closer to what the vendor’s “semiconductor solutions” business is generating.

Lee Caswell, SVP of product and solutions marketing at Nutanix, wrote in a recent blog post that he expects the majority of VMware customers will end up paying more money for the same services now that the acquisition has closed. “Despite Broadcom statements that it would not focus on raising prices, we believe new bundling strategies will drive up effective prices for most customers,” he wrote.

Tracy Woo, principal analyst at Forrester Research, noted in a report that she has “bore witness to VMware renewals that have gone up in multiples.”

Broadcom’s moves not unexpected

While Broadcom’s moves are certainly dramatic, they have not been unexpected. Analysts and rivals had been warning of the potential for these moves since Broadcom’s acquisition plans were first announced in mid-2022.

Woo had initially expressed concerns over how Broadcom’s control of VMware could impact VMware’s current customers and the company’s ability to continue to innovate, concerns that she expressed as the deal moved along.

“I am still hearing about those concerns from customers,” Woo told SDxCentral last year, before the deal closed. “But, I think the one thing that is really in some ways honorable about them is that they are acknowledging this up front. They have said they are only looking at [just their top customers] based on all of the notes that were released. They’re not making any bones about it. They’re not stringing customers along saying one thing and doing another. They’re doing exactly what they said they’re gonna do and, in some respect, you really have to admire this.”

Despite the ripples, some have also applauded Broadcom efforts.

Steven Dickens, VP and practice leader for hybrid cloud at analyst firm the Futurum Group, explained these moves align with changing customer needs.

“Broadcom’s decision to move VMware’s offerings to a subscription-based model aligns with the evolving preferences of the modern digital marketplace and how software is purchased across the market in 2023,” Dickens wrote in a blog post last December. “This shift is indicative of the broader industry trend where companies seek more flexible, scalable and cost-effective solutions. Subscription models offer these advantages by providing ongoing access to the latest updates and innovations without the need for substantial upfront investments.”

Lucas Keh, semiconductors analyst at Third Bridge, told SDxCentral that Broadcom has shown that it can maintain a working balance with its vendor partners to the benefit of customers and Broadcom shareholders.

“It’s not like they don’t deliver,” Keh said. “They execute, margins are high and, performance-wise, customers are happy with the product at the end of the day.” He added that it’s about keeping “those customers coming at the end of those contracts, which ultimately will give more visibility and predictability to how they’ll perform the next three to four years.”

Paul Nashawaty, cowriting with Futurum Group colleague Dickens, more recently added that “the success of this transition hinges on how well Broadcom can integrate these changes without alienating VMware’s existing customer base and how it positions itself against emerging market challenges.”

Nutanix’s Caswell noted that VMware customers are turning to Nutanix for advice on “minimizing their exposure to these Broadcom changes.”