Has Broadcom Achieved Its Mission with VMware?
Last week, the American technology conglomerate released its quarterly earnings report. During this presentation, Broadcom stated that their transition from perpetual licenses to a subscription-based model is “60% complete,” though they provided few additional specifics.
One noteworthy metric that seems to highlight a strong commercial performance of the VMware Cloud Foundation (VCF) offering is that “nearly 70%” of their top 10,000 clients have adopted it. This figure was reported as of February 2, coinciding with Broadcom’s fiscal year-end for 2025. VMware has played a significant role throughout this period, following its acquisition by Broadcom, which was finalized during the 2024 fiscal year.
In the first quarter of fiscal year 2025, VMware generated approximately $2.7 billion in revenue—more than one-fifth of Broadcom’s total sales and about half of its “Infrastructure Software” segment’s revenue. This segment also includes technologies from Brocade (specifically in SAN storage) and CA Technologies (mainframe security). The segment achieved an impressive gross margin of 88%, with an operating margin around 60%. The difference between these margins primarily reflected expenses associated with VMware, amounting to around $1.6 billion. Broadcom has indicated plans to gradually reduce these operating expenses, targeting a post-integration figure of about $1.2 billion. Until then, they expressed pride that they’ve consolidated their portfolio from over 8,000 products to just four offerings, with approximately 3,000 of their top 10,000 clients adopting these solutions. The annualized order value at that time stood at approximately $1.9 billion.
VMware’s Revenue Dominates Broadcom’s Overall Revenue
In the second quarter of fiscal year 2025, VMware accounted for nearly 30% of Broadcom’s total revenue—about $3.8 billion out of $13.1 billion. Operating expenses for VMware were trimmed to $1.3 billion, boosting the operating margin of the “Infrastructure Software” segment to 67%, with a gross margin around 90%. Broadcom also reported the annualized order amount (with a figure of $2.5 billion) and added that more than 15 million CPU cores were reserved within VMware Cloud Foundation (VCF), representing over 80% of VMware product purchases at that time.
By the third quarter, Broadcom ceased reporting VMware’s revenue separately, opting instead to focus on the combined “Infrastructure Software” segment, which posted $5.8 billion in revenue—constituting 41% of Broadcom’s overall sales. The company continued to mention a reduction in operating expenses, now at about $1.2 billion, and highlighted growth in the annualized order value, which reached approximately $2.7 billion. Additionally, VMware secured $21 million in orders for XPU (accelerator processors), with around 70% of these orders related to VCF or vSphere.
In the fiscal year’s final quarter, the gross margin for the “Infrastructure Software” segment rose to 76%, generating $6.7 billion in revenue. Broadcom credited this improvement to the “disciplined integration of VMware,” emphasizing their focus on 39 clients utilizing their VMware Private AI Foundation solution.
Additional Resources and Related Topics
– European Cloud Providers Grow Concerned as Broadcom Battles Competition
– HPE Expands Its VMware Alternative Offerings
– Red Hat Aims to Compete with VMware through OpenShift Without Containers
– Is Broadcom Planning to Abandon VCDX, VMware’s Premier Certification?
– AWS to Relaunch VMware Offerings
– VMware Desktop Hypervisors Shift to Community Support Mode
Overall, Broadcom’s strategy appears to be paying off, with VMware playing a pivotal role both in revenue and in Broadcom’s broader cloud and infrastructure ambitions. The company’s focus on streamlining its product lineup, coupled with ongoing growth in key offerings like VCF, signals a strategic push to make VMware a central component of the company’s software portfolio moving forward. The results so far suggest that Broadcom’s efforts to integrate and evolve VMware’s products are beginning to bear fruit, indicating a successful mission in reshaping the virtualization giant within its corporate ecosystem.
