Broadcom CEO Hock Tan said the integration of VMware is "largely complete" with revenue growth and operating margins hitting 70% exiting 2024.
"We are well on the path to delivering incremental adjusted EBITDA at a level that significantly exceeds the $8.5 billion we communicated when we announced the deal," said Tan, speaking on Broadcom's fourth quarter earnings call. "This is much earlier than our initial target of three years."
Tan noted that although "many deals slipped into the first quarter for VMware, the company brought in 21 million total CPU cores in the fourth quarter, up from 19 million a year ago. "Of these cores, about 70% represent VMware Cloud Foundation (VCF)," said Tan.
The questions for Broadcom primarily revolved around its AI processor and networking business and whether the company would go shopping again now that it has digested VMware. However, the disconnect between enterprise buyers who are at least pondering moves away from VMware and Broadcom's financials has been jarring through 2024.
- Rivals up pressure on VMware for enterprise migrations
- Nutanix lands larger deals in Q4, ups outlook, plays long game vs. VMware
- Broadcom CEO Hock Tan aims to woo VMware customers with private cloud, simplification pitch
- Nutanix product additions, partnerships designed to capitalize on VMware customer angst
- Nutanix winning deals vs. VMware, but Broadcom punching back with pricing
Broadcom said annual booking value (ABV) for VMware was $2.7 billion in the fourth quarter, up $2.5 billion in the third quarter. Tan projected VMware ABV to top $3 billion in the first quarter.
"Since closing the acquisition, just over a year ago, we signed up over 4,500 of our largest 10,000 customers for VCF," said Tan. "VCF enabled customers deploy private cloud environments on prem as an alternative to running their applications in the public cloud."
Tan added that Broadcom continued to cut VMware spending. In the fourth quarter, VMware expenses were $1.2 billion, down from $1.3 billion in the third quarter. VMWare spending was averaging $2.4 billion per quarter prior to the acquisition with operating margins below 30%.
"The naysayers of the VMware acquisition need to tip their hat to Tan, who integrated the company in 12 months. And while everybody is chasing VMware customers, the skeptics will have to learn that re-certification of containers is an expensive business for enterprises," said Constellation Research analyst Holger Mueller. "People keep complaining about VMware, but it hasn't seen major defections yet. Meanwhile, Broadcom may increase discounts if the customer attrition becomes painful."
Other key items:
- VMware's fourth quarter operating income was $8.8 billion, up 53% from a year ago.
- Free cash flow as a percentage of revenue in the fourth quarter fell from a year ago due to interest expenses and debt related to the VMware purchase.
- VMware profitability results won't be broken out going forward.
The other question for Tan was whether Broadcom would go shopping again. Tan said the focus will be on paying down debt but added that cash will be parked on the balance center in case there's "the opportunity to buy someone else." Tan said:
"We are always open (to acquisitions) because it has been a core part of our strategy for the last 10 years. We're always interested in adding to our portfolio with a very good franchise asset in semiconductors or infrastructure software as long they meet the fairly demanding criteria we look for."
