Broadcom’s VMware Acquisition – The Worst is Yet to Come

S. Schuchart

Summary Bullets:

• The playbook Broadcom is running on VMware is indistinguishable from the one used on Symantec and CA Technologies – after it promised things would be different with VMware.

• Acquisitions pivot around humans as much as money – a badly handled acquisition can destroy culture and methods, leaving the acquired entity a husk.

The saga of Broadcom’s VMware acquisition has progressed into the second act. Broadcom took full control of the company after the $61 billion transaction was finally approved by Chinese authorities. Broadcom’s treatment of two previous acquisitions, CA Technology and Symantec, generated significant worries by channel partners, industry watchers, and customers before the VMware deal was even completed. Both companies suffered restructuring, layoffs, divestitures, executive departures, callus treatment of employees, and priorities diverging significantly from what they were accustomed. Broadcom management, including CEO Hock Tan reassured everyone that this time would be different and that the company had learned its lesson. For some, this was a positive sign that VMware, a staple of IT in enterprises, would fare better and its essence and spirit would remain intact.

So far, it seems that hope was misplaced. VMware lost both its CEO and President. Former VMware CEO Raghu Raghuram, who started at VMware in 2003, will remain as a technical advisor to Broadcom CEO Hock Tan. Former VMware President Sumit Dhawan left in less than a week after the acquisition closed to head up security outfit Proofpoint. The layoffs have also started, with a reported 2,800+ jobs cut across the company, expected to occur at the end of January 2024. Also, immediately after the acquisition closed, Broadcom revamped the company into four divisions:

• VMware Cloud Foundation
• Tanzu
• Software-Defined Edge
• Application and Network Security

Further, a leaked memo and reports provided to the Silicon Valley Business Journal (SVBJ) show that Hock Tan is significantly altering VMware’s culture. The company’s headquarters in Palo Alto will be converted to Broadcom’s new base of operations. In addition, Broadcom will be terminating most work-from-home arrangements for employees within a 60-mile radius of a Broadcom office. With many high-tech employees working from home and their jobs in high demand, the way Broadcom is handling its newly acquired employees from VMware seems to be designed to drive them away.

There are four general categories of how good companies handle acquisitions:

1. A small company possessing interesting technology or needing to join a larger company to really grow both customers and R&D are often subsumed wholly, sometimes with founders, sometimes without. Engineering talent and key executives are frequently offered incentives to stay.
2. Medium-sized companies doing well with a small base of users can be wholly subsumed, with their products being sold under the new banner. Sometimes these medium companies are kept functionally together to prevent employee attrition and to prevent any product development and R&D slowdowns. They are then, when the time is right, folded entirely into the parent company.
3. When it comes to big, successful companies with a huge user base and generous revenue, many times the correct play, especially immediately after acquisition, is to leave them alone, run as a separate division of the acquiring company. This is done to retain talent, ensure stability, and to preserve the culture and people that made that company successful. These companies can be absorbed over time (often years and years) or remain standalone. These acquisitions are done with the aim of not killing the golden goose, and making it happy and thrive.
4. Any company doing poorly and in need of a rescue can expect more drastic changes. But generally, the employees at these ailing firms know what is coming and have already likely experienced much uncertainty and cuts and anticipate more. Employees know what is coming and why – they are prepared. The restructuring and layoffs are designed to turn the acquired company around. Often this is done by total subsummation.

The takeaway here is that the human factors (such as employee satisfaction at the new firm); pro-employee policies (such as work from home); fast, clear communication regarding layoffs and expectations; and preserving a successful company’s culture are absolutely key to success. The workforce at a successful company (especially one like VMware) expects better treatment, not the uncertainty of an instant re-organization and the abduction of its headquarters.

VMware employees are offended, angry, and afraid – and channel partners and customers are nervous and discouraged. Competitors are launching campaigns to siphon customers from VMware, and its most compelling argument is also the most straightforward – that after Broadcom “VMware isn’t really VMware anymore.” Broadcom may be able to weather this storm of its own making. But the more likely outcome is additional cuts, divestitures, departures, and general malaise. Broadcom is destroying VMware’s culture in favor of its own, isn’t likely to stop, and has failed to consider the human parts of the equation.