Broadcom CEO Hock Tan said the company’s integration of VMware will 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. VMware’s share of that revenue will also come from a revamped go-to-market strategy.

Tan laid out those plans as part of Broadcom’s latest earnings call, which was held just two weeks after it closed on its $69 billion purchase of VMware. Those results included an 8% increase in full-year revenues to $35.8 billion, which came in just ahead of expectations.

That revenue did not yet include VMware, which itself generated around $12 billion in revenues over the past year. That revenue stream will look a lot different going forward as Broadcom works through its billion-dollar VMware integration.

“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.

Tan noted that the “core” business includes a focus on VMware’s Cloud Foundation (VCF), which is its full-stack software package targeted at enterprises to virtualize their on-premises data centers.

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.

Broadcom kills VMware perpetual license sales

Tan also told investors during the call that Broadcom is focused on converting its VMware customers as they come up for renewals with deeper software services on a subscription basis. The vendor moved on that initiative this week by killing its perpetual license program.

Broadcom is ending that program in favor of subscription licenses. This includes its “support and subscription” renewals for perpetual offerings and hybrid purchase program/subscription purchase program credits.

Customers that are already on perpetual licenses will be able to keep those terms but will not be able to renew those licenses once they hit their end date.

Broadcom is also introducing a “bring-your-own-subscription license option,” which it describes as “providing license portability to VMware validated hybrid cloud endpoints running VMware Cloud Foundation.”

VCF is being 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.

Analysts have been warning such pricing moves by Broadcom were inevitable as the vendor looks to squeeze profits from its pricey acquisition.

Broadcom to ride VMware opportunities

Lucas Keh, semiconductors analyst at Third Bridge, told SDxCentral that VMware will open up software, cloud and interconnect financial opportunities for Broadcom.

“I think the technology opportunities are more than significant,” Keh said, adding that “it's a matter of that company culture and matter of what they're going to integrate and where specifically Broadcom wants to highlight the utmost value given that benchmark that they are looking to grow that software business to be about the same size of their chip business, Broadcom itself also recognizes that there's a lot of that market left to penetrate and grow.”

Keh did warn that Broadcom’s aggressive position with some of its larger customers could provide opportunities for rivals. Keh specifically cited that opportunity for rival’s tied to Broadcom’s somewhat contentious relationship with Google and the hyperscaler’s tensor processing units (TPUs) that it’s using to power its artificial intelligence (AI) work.

“There are a lot of pain points and customers at Google when it comes to Broadcom and the way that they run things,” Keh said. “The prices that they charge, which ultimately costs being the No. 1 driver in the market today, forces some of these other customers to look to an option like Marvell, who could be done a lot cheaper and has in some cases, like 5G and cloud, more specialized IP than even players like Broadcom.”

Despite those competitive concerns, Keh added 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.”