Will Broadcom’s VMware strategy keep paying big dividends?

Four years ago, when Broadcom announced plans to buy VMware, analysts recommended that enterprises start looking for an exit strategy based on Broadcom’s less-than-stellar track record with prior acquisitions. The fear was that Broadcom would raise prices, reduce support, and stop investing in the technology.

Some of those concerns have come to pass. Broadcom eliminated perpetual licenses, forced customers onto a more costly subscription model, pushed customers toward longer term contracts, raised the minimum licensed cores per order from 16 to 72, required that customers buy a full bundle of VMware products under the Virtual Cloud Foundation (VCF) banner, significantly reduced the number of resellers, and focused attention on the top 10,000 customers (out of a total customer base in excess of 300,000).

On the other hand, Broadcom has poured significant resources into VCF, as evidenced by the recent release of VCF 9.1, which the company describes as an AI- and Kubernetes-native private cloud platform with integrated security.

And CEO Hock Tan has articulated a clear vision for VMware as the indispensable platform for enterprises running both traditional and AI workloads in a private cloud setting.

“VMware Cloud Foundation, VCF, is the essential software layer in data centers integrating CPUs, GPUs, storage, and networking into a common, high-performance, private cloud environment,” Tan said during Broadcom’s earnings call in March. “As the permanent abstraction layer between AI software and physical chips, VCF cannot be disintermediated or replaced.”

Whether Broadcom’s strategy is brilliant (from the Wall Street perspective) or diabolical (from the enterprise perspective), it seems to be working. Broadcom’s first quarter 2026 revenue was up 29%, and the company said it expects an astounding 47% year-over-year increase in the current quarter. While much of that is driven by chip sales, VMware revenue was up 13% year-over-year, and recurring VMware-based revenue growth is on pace for a 19% increase.

“Of our 10,000 largest customers, over 87% have now adopted VCF,” Tan boasted during the company’s March earnings call. “This growth reflects our success in converting our enterprise customers from perpetual vSphere to the full VCF software stack subscription.”

So, what happened to the mass migration away from VMware and onto alternative virtualization platforms or the public cloud? And is the Broadcom strategy sustainable over the long term?

Migration plans muddied by complexity

There’s no question that the disruption caused by Broadcom’s acquisition of VMware has resulted in virtually all customers investigating alternatives. And that’s where it gets murky, because the two-phase analysis of figuring out what it would take to extricate from the VMware platform, and then deciding on an alternative, is exceedingly complex.

Gartner analyst Paul Delory has pointed out that it could take a midsized organization two years and a large enterprise up to four years to untangle its dependency on VMware. The cost and complexity of that migration might cancel out any savings associated with a lower-cost alternative and might introduce additional risk, says Delory.

Companies that are actively seeking to move off VMware but have not done so already are facing a very difficult task, Keith Townsend, technology management consultant and founder of The CTO Advisor, tells Network World.

“More than technical difficulties are operational difficulties,” Townsend says. “VMware is not just a technology. It’s the established operating model for these customers’ software defined data center. This includes everything from capacity management, procurement and audit. Furthermore, any potential savings to move to a new platform may not be worth the operational risk or distraction from other projects, such as AI infrastructure.”

A recent survey commissioned by CloudBolt paints a similar picture, with 87% of respondents indicating that they are actively reducing their VMware footprint, but only 4% have completed a full migration. The complexity of migrating and associated costs were cited as the top roadblocks.

Forrester analyst Naveen Chhabra says he has spoken with hundreds of VMware shops over the past few years. “I see most companies reducing their VMware estate as much as possible,” he says. However, Chhabra adds that what’s possible is highly dependent on factors like how soon the current VMware license expires and how many VMware tools are in use.

Companies with a short time to renew and that use a ton of VMware have few options other than to stick with it for the time being. Customers that have a longer runway before contract renewal time and only use a small number of VMware tools are in a better position to migrate. They have time to analyze dependencies, come up with a migration/modernization plan, and explore alternatives.

But, for large enterprises, it’s even more complex than that. Faced with the choice of maintaining on VMware, migrating, or modernizing, enterprises are “doing all three simultaneously,” says Chhabra.

Law firm modernizes on Nutanix

Tim Conners, chief technology officer at the global law firm Simpson Thacher & Bartlett LLP (STB), tells Network World that concerns about the difficulty of migrating off VMware are somewhat overblown.

“There’s tons of fear out there, but it’s not as hard are they’re making it out to be. We built four new data centers in the past 12 months in all four corners of the planet, all powered by Nutanix, with pretty much zero down time,” Conners says.

STB was in a relatively unique position. The company’s data center hardware infrastructure, which includes HPE, Everpure (formerly Pure Storage), and Dell products, was approaching end of life. The firm needed to move its primary data center, plus it was experiencing rapid expansion across Europe, Asia, and Latin America. “We started looking at [questions such as] what does our future look like? Where do we want to go? How do we innovate? How do we scale? We needed to modernize our network for the AI revolution that we saw coming. We were a little lucky in the sense of the timing of all that,” says Conners.

While STB was primarily a VMware shop, there was some Nutanix gear in the mix, Conners said, and he had experience with Nutanix at prior jobs. The migration was driven not by cost concerns or dissatisfaction with VMware, but by a desire to modernize the infrastructure, to standardize across data centers, and to simplify from a three-tier architecture to an “all-in-one” box that integrates compute, storage and networking.

Since he was building out new infrastructure capacity in new locations, Conners didn’t have to move existing gear around, and could install the new hyperconverged infrastructure in a parallel operation. “We didn’t have to put servers on dollies,” he says.

The migration to an entirely new platform also gave Conners the opportunity to take a hard look at capacity needs, to “clean up” the existing infrastructure, and to right-size for the future, building in extra capacity to accommodate growth.

Conners says with Nutanix live migration tools, the cutover has been smooth, and the Nutanix HCI has delivered increased yield for his general compute and VDI environments. He adds that Nutanix service and support, which was a concern under Broadcom, has been top notch.

Is the Broadcom strategy sustainable?

According to Broadcom, 87% of the top 10,000 customers are re-upping on VCF. According to CloudBolt, 87% of survey respondents are actively reducing their VMware footprint. How can both things be true?

When Chhabra drills down into the numbers, he points out that if all of those VMware customers were absorbing massive price hikes, then Broadcom’s VMware revenue growth would reflect those skyrocketing numbers. The fact that VMware revenue is only growing at a modest 13% indicates that customers are renewing, but at the same time reducing their overall VMware footprint. By his calculations, the average customer is only renewing 25% of its VMware estate.

Steve McDowell, chief analyst and founder at NAND Research, notes that Broadcom’s VMware strategy isn’t focused on growing its customer base.

“Broadcom’s VMware strategy prioritizes monetizing the existing customer base over expanding it,” McDowell says. “It’s an approach that has already generated strong short-term financial results and promises to continue to deliver over the near-term. The challenge is that it’s a strategy that’s driving many customers to competitors.”

McDowell adds: “The critical question for 2026 and beyond is whether higher average revenue per customer can continue to outpace the inevitable churn from aggressive pricing shifts. Broadcom has delivered on its promise to investors in the near term, but sustaining momentum without further alienating its customer base will determine whether this high-stakes bet pays off in the long run.”

Broadcom is also banking on companies continuing to invest in private clouds rather than simply moving workloads to the public cloud. And Tan wants to cash in on AI-powered private cloud data centers.

Chhabra is not convinced about the latter. “How many companies will be able to get the infrastructure to run private AI models? Do companies have a business plan to do that? How much power is required to run hundreds of kilowatts of racks? Private cloud AI certainly has a story, but how much translates into revenue for VMware? That’s the question.”

Still, if Broadcom finds success outside its largest tier of VMware customers, there’s room for more growth. In Broadcom’s March earnings call, Tan noted that the largest 10,000 companies are finding success and value with VCF. “We are now looking at whether the next 20,000, 30,000 midsized companies see it the same way. Stay tuned.”