Broadcom CEO Hock Tan On VMware: 'We Can Offer Better Products Without Raising Prices'

With partners and industry analyst Gartner worried about a price hike on the way for customers, Broadcom CEO Hock Tan announces that he can offer a better VMware ‘without raising prices'

Broadcom CEO Hock Tan is firing back at industry-wide fears that once VMware falls under his command, the cost of the ubiquitous virtualization product will skyrocket, saying Broadcom can provide a better product without increasing prices.

"The Broadcom business case for this transaction is premised on focusing on the business model, increasing R&D, and executing so that customers see the value of the full portfolio of innovative product offerings — not on increasing prices," Tan wrote in a lengthy blog post. "Following the close of the transaction, we will invest in and innovate VMware's products so we can sell even more of them and grow the VMware business within enterprises, deepening and expanding the footprint instead of potentially raising prices."

Tan wrote that Broadcom's success in the past has not been achieved by raising prices, but through improving the products under its umbrella.

"Our growth into a global technology leader was not based on taking existing products and raising their prices, but by creating technology and products that provide clear value to customers and continuing to improve them," he said. "We fuel growth by offering more and better products so customers are using more of our entire portfolio of technology products, rather than just one or two."

However, analyst Andrew Lerner told CRN after reading Tan's blog post that Gartner clients - particularly those who have experience with Broadcom - have "major concerns" about pricing once the deal with VMware closes.

"Pricing is absolutely the number one concern for VMware customers - especially customers with experience with Broadcom through their recent acquisitions," said Lerner in an email. "After Broadcom's acquisitions of CA Technologies and Symantec, numerous customers complained to Gartner about dramatic out-the-door cost increases during renewals, with limited flexibility for negotiations."

VMware said Wednesday it had no statement on Tan's blog post.

Two weeks ago, VMware CEO Raghu Raghuram told partners at The Channel Company's Best of Breed 2022 event that if their customers are worried about Broadcom's pricing they should renew now.

"For customers that are worried that Broadcom will come in and raise prices post-close, there's plenty of time," he said. "There are customers who have said, I want to come in and do an early engagement with VMware, do an early renewal, and we are doing that all day long. For the partners, you have to be aware of that. If customers express a high degree of uncertainty and say, ‘What is VMware going to do?' Introduce certainty (by offering early renewal)."

Rick Gouin, chief technology officer at Winslow Technology Group, a VMware partner out of Boston, said his customers believe a price hike is coming.

"I think customers are sceptical. I think they look at other acquisitions as potentially as an example of how this could go," he said. "I think they're right. Generally we're not going to know how this shakes out, for a year plus, after an acquisitions closes. We definitely have some customers who are looking at making long-term subscription buy-ins now. Because they're viewing it as having a price locked in. I do have some customers doing that to hedge against price hikes in the future."

Broadcom and VMware announced their merger on May 26. The two companies negotiated about 20 days before agreeing to a purchase price of $142.50 per share of VMware stock. Broadcom said the FTC is taking a "second request" look at the merger, which blocks the deal from being finished until the government's investigation is satisfied.

Since the announcement VMware resellers have voiced alarm over how Broadcom has treated channel partners in the past. Broadcom said it has learned from those transactions and intends to "embrace the channel."