Broadcom promises there will be no price increases for VMware post-acquisition

Broadcom’s acquisition of VMware immediately met with some resistance, particularly from VMware customers concerned about possible price increases and changes in corporate strategy. Broadcom chairman and CEO Hock Tan has now responded to those concerns by saying there will be no price hikes. However, many doubts remain about how it intends to double VMware’s profits.

Won’t VMware raise prices post-acquisition?

There is a “law” of journalism which states that “any headline ending with a question mark can be answered ‘no'”known by the name of “Beteridge’s law of securities”. However, for once we feel like using a question in a title in a serious way, because doubt is legitimate and the answer given by the CEO of Broadcom is half-convincing.

“In October, I shared my thoughts on what a combination of Broadcom and VMware will mean for customers. […] I continued to see questions in the press reports about our plans to raise prices for VMware products. The answer is simple: no.” So writes Tan sul blog by Broadcom.

Here, fine. But there is a double problem. On the one hand there are the words of Krause, then president of Broadcom, a year ago. In fact, in November 2021, Krause said he wanted to focus on the 600 largest customers, making sure that the smaller ones “lose”. This strategy has been applied to Symantec and CA Technologies, both recently acquired by Broadcom and split to various extents to recover part of the investment. Both companies’ products have seen significant price increases post-acquisition.

On the other hand, there is the fact that Broadcom has stated that it wants to increase VMware’s EBITDA from 4.7 billion to 8.5 billion by 2025. How to do this without raising prices, considering that the market is already saturated and there are no great growth prospects? Even by cutting costs, how is it possible to double EBITDA within three years without intervening on product prices?

The market remains skeptical, but that’s because Tan hasn’t disclosed how he intends to achieve this. It therefore becomes difficult to understand how Broadcom wants to move and what changes will take place. There is still almost a year to figure it out: the agreement stipulates that the acquisition will close by the end of Broadcom’s fiscal year 2023, which will end on October 31, 2023.