Broadcom’s bold VMware strategy pays off financially, but customers are unhappy with price hikes
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Bottom line: Broadcom’s acquisition of VMware has yielded impressive financial results, according to the company’s recent quarterly earnings report. For the quarter ending February 2, Broadcom reported revenue of $14.92 billion, marking a significant 25% year-over-year increase. Net income surged to $5.5 billion, a remarkable 315% rise compared to the same period last year.
A key driver of this growth is the integration of VMware into Broadcom’s infrastructure software business unit, which posted revenue of $6.7 billion in Q1 2025 – up from $4.55 billion in the same quarter last year.
Although Broadcom no longer reports VMware’s revenue separately, the substantial increase suggests VMware’s contributions have been considerable. Before the acquisition, Broadcom’s software sales experienced only modest growth, with increases of 3% in FY 2023 and 4% in FY 2022.
To better understand the impact of VMware, it helps to examine Broadcom’s software revenue before the acquisition. In Q4 2023, Broadcom recorded $1.97 billion in software revenue, bringing its full-year total for FY 2023 to $7.6 billion. VMware, in its last quarter as an independent company, reported $3.4 billion in revenue. Given these figures, Broadcom has successfully increased VMware’s quarterly revenue by approximately $1 billion in just over a year.
Graph by App Economy Insights
This sharp revenue growth is largely attributed to Broadcom’s strategy of bundling VMware products into higher-priced subscription packages rather than selling them as standalone licenses.
The largest of these bundles is VMware Cloud Foundation (VCF), which includes a full stack of VMware technologies. During Broadcom’s earnings call, CEO Hock Tan revealed that by the end of Q1, approximately 70% of the company’s top 10,000 customers had adopted VCF. The shift to VCF, combined with higher costs for existing customers, likely accounts for the substantial revenue increase.
Additionally, some of the rise in net income can be attributed to cost-cutting measures at VMware. In its final standalone quarter, VMware reported an operating margin of 16%. In contrast, Broadcom’s software business delivered 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.
