Early reports indicate that Broadcom is dramatically boosting the minimum number of cores required for VMware licenses, increasing the base level from 16 to 72 per command line. The change, which is likely to drive price increases for smaller customers, is due to take effect on April 10.
These reports are based on an email obtained by The Register, sent by the French division of Arrow, a global IT and cloud solutions provider that distributes VMware products in the US and Canada. The email states, “We would like to inform you of significant changes made by Broadcom that will impact our joint business,” and that “this new requirement may require adjustments to your current quotes,” which suggests major price increases.
Furthermore, the email states that Broadcom is charging penalty fees for end customers who have not renewed their subscription licenses by the anniversary date. These penalties will amount to 20% of the first year’s price, and will be applied retroactively.
This new pricing structure appears to be in line with Broadcom’s strategy of prioritizing large enterprise vendors over smaller and mid-sized companies. An example included in the Arrow email seemed to support this concept. “If a customer has a single-processor server with 8 cores, VMware by Broadcom will license 72 cores. On the other hand, if a customer has 5 dual-processor servers with 16 cores each (i.e., 160 cores), VMware by Broadcom will license 160 cores.”
Meaning: If you’re a company with smaller IT department that runs 8-core machines, you’ll now need to pay for many more cores than you’re using. These firms with a smaller tech footprint are more commonly running VMware’s vSphere Foundation and vSphere Enterprise Plus solutions, which support base-level virtualization capabilities. By contrast, the large enterprise companies running hefty 5 dual-processor machines will likely not see a price hike.
As a business strategy, Broadcom’s focus on larger customers makes sense. Catering to the infrastructure requirements of large enterprise customer offers the highest return on investment. Broadcom essentially announced this as its strategy in an investor day event in November 2021. “We continue to invest in our targeted model of partnering with the largest multinational customers to provide a comprehensive portfolio of industry-leading solutions and generate sustainable revenue,” said Tom Krause, president of Broadcom Software Group.
On display at the event was a graphic that illustrated that VMware derives 70% of its annual recurring revenue from approximately 600 strategic accounts. Krause told investors that these mega-cap players tend to be in industries that face strict levels of regulation, so the risks of switching something as foundational as their virtualization solution were potentially quite high.
Additionally, while these giant vendors are public cloud customers, they are not entirely public cloud-base (as are many smaller firms) and so their reliance on hybrid cloud (where VMware has historically been strong) is forecast to continue for years to come.
Over time, it appears this approach has worked well for Broadcom. CEO Hock Tan in December 2024 told investors that VMware that was creating more revenue than forecast, and in fact was topping the most optimistic predictions. VMware’s average expenses were trimmed by about 50%, and the number of subscriptions for processor cores increased from 19 million to 21 million in the fourth quarter. Of this total, 17 million were slated for VMware Cloud Foundation, the private cloud solution favored by the company’s largest enterprise customers.
A request for comment sent by Techstrong.it to Broadcom received no response by the time this story was filed.
