Broadcom has told investors its strategy of forcing VMware customers to buy only big bundles of software will see revenue increase by “double-digit percentage sequentially, quarter over quarter, through the rest of the fiscal year.”
Speaking on Broadcom’s Q1 2024 earnings call, president and CEO Hock Tan said “This is simply a result of our strategy with VMware.”
We are focused on upselling customers, particularly those who are already running their compute workloads with vSphere virtualization tools to upgrade to VMware Cloud Foundation,” he added.
Tan described Broadcom’s strategy for VMware as “very successful so far.”
“The results have been very much what we expect it to be, which is very, very successful.”
Broadcom owned VMware for ten-and-a-half weeks of its Q1, during which its software infrastructure business unit brought in $4.571 billion of revenue, up from $1.935 billion in the previous quarter. $2.1 billion of this quarter’s revenue came from VMware.
We think that’s a revenue dip. VMware’s comparable quarter last year lasted fourteen weeks instead of the usual thirteen and yielded $3.71 billion revenue.
On The Register’s calculations, VMware revenue earned by Broadcom translates to a $2.8 billion quarter – a figure we reached by taking a weekly average of VMware revenue and multiplying it by 14 to compare it to last year’s number. $2.8 billion is low by recent VMware standards – the last quarter VMware reported [PDF] as an independent company yielded $3.41 billion revenue.
We’ve also heard that VMware license renewals were paused during the transition to Broadcom’s ownership, making recent weeks a difficult selling season.
Broadcom’s sales team is now back in business so double-digit percentage growth may not be hard to achieve in the next quarter.
The company’s bundled pricing certainly point to further revenue increases.
The Register attended a VMware User Group Town Hall session this week and participants used the chat facility to bemoan price rises of 500 and 600 percent.
Those rises come because Broadcom now only sells product bundles and claims that implementing everything its licenses cover delivery optimal value. Yet many VMware customers don’t want all of the products in a bundle. A shift to per-core licensing has also led to cost increases.
Which may be why Hock Tan forecast Broadcom’s software revenue to top $20 billion this financial year.
Or perhaps that forecast is all down to Tan’s promise on the call that VMware by Broadcom is “engineering a very improved VMware Cloud Foundation stack” and customers will flock to the improved product.
Broadcom has decided not to spin out VMware’s Carbon Black security software business unit.
Hock Tan told investors he’s decided Broadcom can deliver them more by integrating it than with a divestiture that he said would be “not particularly large”.
The chip biz
Broadcom’s chip business brought in $7.39 billion, up four percent year-on-year.
Tan cited “strong demand for our networking products in AI data centers, as well as custom AI accelerators from hyperscalers” as strong growth drivers.
“Strong” might be an understatement as networking revenue of $3.3 billion represented 46 percent year on year growth.
“This was largely driven by strong demand for our custom AI accelerators at our two hyperscale customers,” Tan said on the earnings all, before adding that “Tomahawk 5 800G switches saw through Ethernet NICs retirements, DSPs, and optical components are experiencing strong demand at hyperscale customers as well as large-scale enterprises deploying AI data centers.”
The CEO upgraded guidance for full-year networking annual revenue growth from 30 to 35 percent.
He also upgraded guidance for AI-related products from 25 percent of revenue to 35 percent, or $10 billion for the full year. Those bounces offset weaker demand for broadband and storage-related silicon.
Overall revenue guidance therefore remained at $50 billion, up forty percent year-over-year – helped by the addition of VMware.
Revenue for the quarter was $11.96 billion and net income was $1.325 billion, a significant drop. Operating profit, however, jumped 30 percent to $7.1 billion and Broadcom announced a dividend of $5.25 per share.
Investors weren’t in love with the results, as shares dipped to $1,361 after earlier trading at $1,415. ®
