Broadcom’s VMware acquisition is now officially rippling across the cloud ecosystem and workforce, with analysts expecting dynamic short- and long-term ramifications.

The deal, as expected, has resulted in thousands of job cuts across VMware sites around the world. The total number of those cuts might not be known for several months as Broadcom works through the required employment and government filings.

Alex Demeule, an analyst at Technology Business Research (TBR), indicated in a report that those cuts are reportedly in areas of software development and cloud engineering, two areas that could impact future development.

“The fact that R&D-related headcount is being cut early does not paint a favorable picture for Broadcom’s commitment to innovation,” Demeule wrote.

Broadcom CEO Hock Tan had previously pledged to invest an incremental $2 billion per year in VMware, with half of that investment focused on R&D. “Still, TBR remains skeptical on future R&D efforts,” Demeule added.

Demeule also noted job cuts were coming from administration roles, with expectations for more cuts in the near term from sales and marketing teams.

Those job cuts are expected to eventually impact customer support.

“Expect massive workforce reduction to impact employees,” Tracy Woo, principal analyst at Forrester Research, noted in a report. “This will further impact support quality and jeopardize future roadmaps.”

Will Broadcom provide VMware with near-term stability?

Despite the immediate job cuts, some analysts expect the new “VMware by Broadcom” operations to remain somewhat stable over the near term with more uncertainty down the road.

Mauricio Sanchez, senior director of enterprise security and networking research at Dell’Oro Group, said most of the focus has been on the job cuts, which were expected as part of Broadcom’s promised “efficiencies.”

“Morale is pretty low,” Sanchez said of the cuts.

But some divisions could see an upside, with Sanchez specifically pointing to Symantec, which appears to have gained some hierarchical clarity within Broadcom’s security focus following the unhitching of Carbon Black from VMware. Sanchez noted this move was hinted at last month and could be appealing to some VMware customers.

“I think when it comes to the networking side, and even to the compute side, the Symantec assets are still a formidable unit within Broadcom,” Sanchez said. “I think there's a lot of synergies and they are very eager to see what the next steps are going to be. There’s a bit of a zipper here where on the networking side and the compute side, coupled together with the Symantec security side, there could be some very interesting synergies. At the very least it makes it a lot easier to be able to become that one-stop shop for Broadcom customers who in the past had the Symantec side and then of course the VMware compute storage networking side.”

A new Dell’Oro Group report ranked Symantec as an industry leader in the secure access service edge (SASE) market alongside rivals Zscaler, Cisco, Palo Alto Networks, and Fortinet. The research firm noted the market posted a 33% increase in revenues during the third quarter and was set to surpass $8 billion in total revenues for the year.

Sanchez said he expects Broadcom will look to capitalize on VMware’s SD-WAN market position and current contracts to expand that reach.

“The combination could afford Broadcom the opportunity to undercut the competition,” Sanchez said. “I'd be surprised if that's their initial stance considering that it's not yet a commoditized space. I think there's value to be extracted about being an end-to-end shop before pulling the price card. It’s very nice to have [the price card] in the back pocket, especially as the efficiency is growing."

Sanchez added that despite that opportunity, he expects pricing to remain at least stable in the near term.

"If they wanted market share they definitely could shave off some of the top line to be able then to increase market share with the aim of more revenue, but I don't think right now out of the gate that will necessarily be their first move as much as being able then to capture first entire share of wallet from the customer to build that that relationship," Sanchez said. "If anything, what we’ve heard on the compute side is that it’s actually gone the other way. It's not necessarily that they're giving them stuff at a discount, it’s more of adjusting the prices upwards a bit.”

Woo noted in her report that Forrester Research has “bore witness to VMware renewals that have gone up in multiples.”

Areas of concern

Woo also continues to express concern over Broadcom’s integration of VMware. She had previously cited Broadcom’s integration struggles with its CA Technologies purchase in 2018, and the Symantec acquisition completed in 2019.

“Between the two companies, customer support reduced significantly, and innovation stunted from deprecated revenue investment in R&D (3% drop) and sales and marketing (22% drop),” Woo wrote.

Highlighting her belief that Broadcom will follow the same integration path with VMware, Woo pointedly showed slides Broadcom used as part of presentations ahead of closing on the Symantec and VMware deals that “have the same ‘cut-and-paste’ slideware.”

Another remaining area of concern is VMware’s Tanzu operations. VMware spent several years and several billion dollars bolstering those operations in an attempt to better position the company toward a cloud-native future, but analysts have noted those efforts have so far fallen short of expectations.

“The container management platform sits at the heart of the company’s multicloud strategy, which VMware has pushed heavily over the past 18 months, yet TBR suspects Tanzu contributes only a small percentage of total revenue and certainly cannot be considered a profit center,” Demeule wrote. “If Broadcom is to achieve its stated profitability goals, VMware will need to scale this offering rapidly. If it does not, TBR expects there will be a limit to Broadcom’s patience and a spinoff may be in the cards over the long term.”

Sanchez said he thinks shedding Tanzu would be a mistake.

“I think it would be a shame if they divested it or got rid of it because then the whole spirit of innovation would be gone,” Sanchez said. “It would be a little bit like you're throwing the baby out with the bathwater because if anything that's the future of enterprise application architecture. I think Hock Tan was quite adamant that it’s still going to be about innovation, and I think Tanzu represents that from this application orientation. That's where the puck is going, and I think it would be very short-sighted to get rid of Tanzu.”

That decision could be an important tell in how Broadcom plans to steer VMware longer term.

“VMware’s software is heavily embedded in many mission-critical applications in major enterprises. Plus, organizational change post acquisitions take a while to fully set in,” Woo wrote. “The next six months, however, will be telling about how Broadcom intends to navigate its newly found role in the cloud software world. Don’t hold your breath on a true success story in which VMware remains unaltered and its own independent entity. Do expect price hikes, degraded support and a VMware with a more diluted value prop.”