Everything Broadcom CEO Hock Tan Has Said About The VMware Deal
The road To VMware’s future might go through Broadcom CEO Hock Tan. Here is what he has said so far about what lies ahead for the software virtualization powerhouse.
May 26 – Investor Presentation To Discuss VMware Deal:
‘By adding VMware, we will bring significant scale to Broadcom’s software business’
“As you know, we never embark on an acquisition unless we feel our core is very strong and solid. Irrespective of what you might think of where we are in the semiconductor cycle today, I do want to reassure you the fundamentals of our business, both in semiconductors and in software have never been stronger.
We have just reviewed how solidly grounded these businesses are. So let me discuss now what we believe is a very unique opportunity to take our company and its business to the next level … By adding VMware, we will bring significant scale to Broadcom’s software business, and reinforce our position as a premier provider of mission-critical platform solutions to enterprises globally.
One of the reasons we became very interested in VMware was because of its world-class team, engineering-centric culture and strong customer and partner relationships. VMware importantly aligns incredibly well with the Broadcom strategy. And it has all the attributes we seek in the platforms we operate. VMware is the leader in big, growing and global markets. The company is an indispensable provider for mission critical platform technology with a blue-chip customer base and an incredible innovation engine.
Together with Broadcom’s existing software portfolio, we are positioned to create a uniquely powerful value proposition for enterprises, enabling them to develop, deploy and manage their applications securely, seamlessly across every type of cloud and to accelerate the application life cycle for their workloads.
And in addition to adding new dimensions of value for customers, VMware also has an ideal profile that will enable us, Broadcom, to create compelling value for our shareholders. As part of Broadcom, our target is for VMware to contribute approximately $8.5 billion of EBITDA once we have fully integrated the company onto our platform. With more than $40 billion of pro forma revenue, and this is pro forma on fiscal ‘21, we are creating one of the world’s largest infrastructure technology companies.
Our semiconductor business is one of the largest semiconductor businesses globally with 17 key franchises. It is highly profitable. And as I just reviewed, continues to post very strong organic growth. Revenues have grown from $15.6 billion in 2017 following the acquisition of classic-Broadcom to $20.4 billion in fiscal ‘21, all this growth being organic. With the addition of VMware, our software business will now represent close to half of our total pro forma revenue with approximately $20 billion of software revenue for fiscal ‘21. With this type of scale and a continuing commitment to R&D and innovation, we will be able to significantly invest and fund new innovative solutions that will support our customer base.
Regarding Changes To VMware Software Licensing Deals
From an economic point of view, whether it’s perpetual or subscription, frankly, is the same. But we want to make it very consistent with the way we run the model. And based on this, we are, in a sense, restructuring the contracts, perpetual to subscription. And you — that’s why you, depending on where you see it, you’ll see a slower growth at the beginning, if any, followed by a more rapid growth as we convert more to subscription.
Regarding Synergies And How VMware Can Grow Faster
We’re dancing around the central issue, which is we will keep — and we have seen us — we invest in R&D and hardware we do a lot of that if we have to. And it’s all at the end of the day, this is a great franchise. In terms of monetization, it’s all about execution. And that’s, in a nutshell, what we’re seeing here. We believe we will execute much, much different, hopefully better, than what we have been seeing so far.