Broadcom’s successful VMware strategy boosts profits, but customers dissatisfied with increased prices

livered a 76% operating margin in Q1 2025, up from 59% a year ago.

Despite the apparent financial success of the acquisition, Broadcom’s handling of VMware has sparked widespread customer dissatisfaction.

Reports indicate that some customers have faced price hikes ranging from three to six times their previous costs, with the most extreme case being a reported twentyfold increase. As a result, many are now at a crossroads, debating whether to remain with VMware or seek alternative solutions.

While Broadcom’s financial results suggest its strategy has effectively driven revenue growth, the long-term implications remain uncertain, as concerns persist about potential customer migrations away from VMware.

In Q1 2025, Broadcom’s financial reports indicated significant revenue growth due to the inclusion of VMware in their infrastructure software division. The revenue increase was 25%, reaching $14.92 billion with a net income of $5.5 billion, showcasing a substantial 315% rise from the previous year. This surge in revenue is attributed to the incorporation of VMware, previously a standalone entity. Although specifics of VMware’s contributions are no longer detailed post-acquisition, the revenue spike implied significant gains. In the pre-acquisition period, Broadcom’s software sales saw only marginal growth at 3% in FY 2023 and 4% in FY 2022.

Analyzing Broadcom’s software earnings pre-merger, it becomes apparent that VMware played a significant role in the company’s boosted revenue. With Q4 2023’s software sales reaching $1.97 billion, the FY 2023 total amounted to $7.6 billion. In its last independent quarter, VMware reported revenue of $3.4 billion, highlighting Broadcom’s success in increasing VMware’s quarterly revenue by nearly $1 billion in slightly over a year.

The notable revenue surge can be largely attributed to Broadcom’s decision to integrate VMware suite products into premium subscription bundles instead of individual licenses. The most prominent bundle, VMware Cloud Foundation (VCF), offers a comprehensive range of VMware technologies. By the end of Q1, around 70% of Broadcom’s top 10,000 clients had adopted VCF, contributing to the revenue increase along with heightened costs for existing users.

Moreover, the rise in net income can be linked to VMware’s cost-containment methods. VMware’s final independent quarter reported a 16% operating margin, which contrasts with Broadcom’s software division’s delivery of a 76% operating margin in Q1 2025, up from 59% a year before.

Despite the financial triumph following the acquisition, Broadcom’s handling of VMware has been met with dissatisfaction from customers. Numerous reports have surfaced regarding substantially increased prices for users, ranging from three to even twenty times previous costs. This has put customers in a dilemma, contemplating whether to retain VMware services or explore other alternatives.

While Broadcom’s fiscal achievements indicate successful revenue growth through their strategy, concerns linger about potential customer shifts away from VMware in the future.