Broadcom Will Divest VMware’s EUC And Carbon Black Businesses
In the latest installment of the Broadcom VMware acquisition saga, Broadcom CEO Hock Tan announced on Broadcom’s Q4 2023 earnings call last night that the semiconductor giant will be divesting two VMware business units: end-user computing (EUC) and Carbon Black. The announcement comes just eleven days after Broadcom completed its acquisition of VMware on November 26th, a quick turnaround that suggests that the move to spin off these two business units has likely been in the works for some time. Up to this point, the fate of VMware’s EUC and Carbon Black business has been mysteriously absent from Broadcom communications, a fact that led Forrester to predict this spin off would happen.
VMware’s EUC business comprises Horizon for client virtualization, App Volumes for application delivery, and Workspace ONE for device management and digital employee experience. The Carbon Black product is an endpoint security product focused on endpoint prevention, detection and response, and extended detection and response. Forrester’s consensus is that this divestiture is likely good for customers and both businesses.
Why is this potentially good news?
VMware’s EUC and Carbon Black products represent a small percentage of VMware’s overall business, which means that they’ve both lived under the shadow of VMware’s broader portfolio for years. The spinoff will likely enable both companies to increase their independence, helping them to increase brand awareness, secure more R&D funding, and pursue strategies relevant to their respective markets. Additionally, both will potentially avoid or delay some of the negative consequences of a Broadcom acquisition, which Forrester expects will bring price hikes, degraded support, and a diluted value proposition for VMware products. A sale may eventually result in these impacts anyway depending on the buyer, but for the time being, currently satisfied customers should hold steady with their investments.
However, Forrester expects there will be at least two sales. As Hock Tan mentioned in the earnings call, “we’ll find good homes for them because there are a lot of very interested parties who are more than happy to take those assets.” Because Carbon Black and VMware EUC don’t have a lot of natural synergies, we expect Broadcom to sell both entities separately.
How will the divestiture impact VMware EUC?
Independence from Broadcom and VMware will create opportunities for VMware EUC to:
- Enable greater hypervisor flexibility beyond ESXi for Horizon, potentially improving customer choice and enhancing EUC’s compete story against Citrix..
- Laser focus on digital workplace investments without having to share resources with a broader VMware that has no relevance for those buyers, similar to the AirWatch days.
- Fill a critical gap in a large EUC-focused technology vendor. While we don’t know anything about potential buyers for VMware EUC, multiple vendors are struggling to ward off the growing dominance of Microsoft in EUC. Google, for example, has limited virtual desktop capabilities and its mobile deployments are small in comparison to Workspace ONE, a product that manages hundreds of thousands of devices for Walmart. Amazon recently deepened its partnership with Microsoft, but it could benefit from the breadth of the Workspace ONE product.
Ultimately, the divestiture will prove most advantageous for Microsoft. The company’s innovation in unified endpoint management and desktop virtualization, its attractive licensing options, and uncertainty about VMware’s EUC future will be all some EUC customers need to jump ship. Customers will also encounter risks around long-term Horizon supportability, reduced revenue streams for EUC products in the short-term, and likely support issues as Broadcom pursues cost-cutting initiatives.
How will the divestiture impact Carbon Black?
Independence from Broadcom and VMware will create opportunities for Carbon Black to:
- Refocus its efforts on security operations, without the pressure to drive crossover use cases into IT operations.
- Avoid sales competition with Symantec’s current security offerings, simplifying the sales processes for sellers.
- Focus on innovation and expanding Carbon Black functionality without having to integrate or deduplicate its functionality with Symantec.
The risks for Carbon Black are fewer than they are for the VMware EUC business, but the company is reentering a crowded endpoint security space. Without the backing of VMware or Broadcom, Carbon Black will face tough competition in a market where two others, Blackberry and SentinelOne, are rumored to be considering sales.
VMware EUC and Carbon Black success will depend on their buyers
So far, we don’t know much about potential buyers, but we do know one thing: it’ll be an expensive acquisition. Tan revealed that both assets make up about $2 billion in VMware revenue, which gives us an idea of overall valuation. It’s going to take a large technology company or an ambitious private equity firm to reinvigorate these companies, both of which have stagnated for a number of years under the haze of the Broadcom-VMware acquisition.
For customers on the fence about VMware EUC and Carbon Black, it’s likely time to consider additional options, especially if support starts to erode, a likely scenario given that Broadcom is committing to $1.3 billion in cost reduction activities through 2025.
For those that are content with existing investments, take a wait and see approach and evaluate your investments based on whatever company buys your respective tool.
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