Broadcom's Hock Tan on Partners, Scale and Choice for VMware

Under the spotlight of regulatory scrutiny, Broadcom CEO and president Hock Tan has been working to bring clarity to how VMware will thrive in the Broadcom family. What will undoubtedly be a relief to prospective customers, partners and the wider market is that it won't come at the expense of stifling competition and choice. However, faced with apprehension from various trade, competition and antitrust bodies, Mr Tan and his team have had some convincing to do.

Shortly after Broadcom announced its intentions to acquire VMware on 26 May 2022, CCS Insight commented on the announcement. We viewed the decision as a smart move to shepherd a more diversified hardware and software company with a rounded infrastructure and cloud management story. And, although VMware is certainly a prized asset to acquire, we expected challenges in bringing together silicon, software and services.

In this episode of the CCS Insight podcast, Bola Rotibi, chief of enterprise research, provides a deep dive into the foundations for the acquisition of VMware, with Mr Tan setting out his vision for the deal.

Broadcom's investment goals promise to extend the range of VMware partners, offering more choice and expanding VMware's operations and market foothold. Its aim of rebranding and repositioning the Broadcom Software group under the VMware brand is recognition of the latter's strength in the technology and supply chain ecosystem. Customers and partners will be reassured by these aims — and Broadcom will be hoping that regulatory bodies feel the same.

The companion report outlining the key points of the discussion is now available here.

Note: Hock Tan's comments on investments and plans for VMware are to be understood as referring to future circumstances in which Broadcom has closed its proposed acquisition of VMware.

Creators & Guests

Host

Bola Rotibi

Chief of Enterprise Research at CCS Insight

Guest

Hock Tan

President and Chief Executive Officer, Broadcom

What is The CCS Insight Podcast?

Insightful audio from the global tech advisory firm.

Bola Rotibi:
Hello to our audience and welcome to the next episode of the CCS Insight podcast, where we talk to experts about the issues and trends driving information technology across industries. My name is Bola Rotibi and I am the Chief of Enterprise Research at CCS Insight. Today, we have a very special guest. He was born in Malaysia, is a mechanical engineer graduate of the Massachusetts Institute of Technology, better known as MIT. He has an MBA from Harvard University, is a committed philanthropist and has enjoyed an illustrious business career. If you read the Financial Times, you will have likely seen him profiled back in February this year discussing Broadcom and the pending acquisition of VMware, a globally recognized cloud computing and virtualization company. I'd like to welcome Hock Tan, President and Chief Executive of Broadcom, as my guest on this podcast episode. Welcome.

Hock Tan:
Hi. It's great to be here.

Bola Rotibi:
So, I want to quickly get into asking my first question. Tell us about Broadcom. What's the history of and your vision for the company?

Hock Tan:
Broadcom's genesis came from Hewlett-Packard. We were originally the HP Semiconductor unit, and that was like over 40 years ago. And over the years we had consolidated integrated technology, which I'll touch on later. Largely semiconductor technologies, Bell Labs and multiple iconic technology names. So, we didn't grow from zero. We had the benefit of being able to stand on the shoulders of giants in technology.
And we came into being basically as a spinoff of HP 17 years ago and I was the first CEO, happily. And then and we have since gone through our business model that has remained very consistent throughout these 17 years, not just in semiconductors, but also more recently in the last five, six years in infrastructure technology.
To begin with, obviously, given our history and given our genesis, we see ourselves as a technology company. That's in our DNA. And the business model that we adopted is essentially to look, select, acquire, invest and grow in specific areas, so specific verticals of critical technologies, and ensure that we are at the leading edge in each of these spaces.
And so, what we've done in a lot of our acquisitions has been, we select businesses that are very critical that has a sustainable need. So, as evidence, the last 20 years and as we can forecast the next 20 years, and just invest and run those businesses much better than they have been run. And the way we do it, we focus and we invest as much as we need to.
And one way we've been able to do is grow from $1.4 billion of revenue 17 years ago, and we are $33 billion the last fiscal year. And we didn't do it in one single product line: we have over the years accumulated 22 distinct product lines. But organic growth is what we look to achieve. And to give you a sense over this 17 years, that's about a 16% annual compounded growth rate over 17 years to get to that level on revenue.
But in R&D, we actually grow over 25% compounded annual growth rate. So, we out-invest even at top line growth, but at the bottom line, we grow even faster over 40% compounded annual growth rate, which kind of tells us this is a very interesting business model, which is that if you put out the best technology available to the marketplace, you make a difference.
You make a difference. We make a difference for our customers. We make a difference to the ecosystem. And we like to believe we have a hand in shaping the IT industry, the technology industry, the way we see today.

Bola Rotibi:
Okay. That's a fantastic back history in terms of the acquisitions that you've made and what you're looking for in terms of organic growth, along with the vision that you've set for the company.
Now, as you've already said, this isn't your first acquisition rodeo. And if we look at the company's history, I know that you acquired CA Technologies back in 2018 and Symantec Enterprise Business Security back in 2019.
So how did the decision to acquire VMware come about and how does it fit into the bigger picture that you've already outlined? I'd welcome your insight.

Hock Tan:
When we make an acquisition and we look at the business, the assets, particularly the technology and the opportunity in it. We don't look at it as it pertains to what we already have. We look at it on a standalone basis and our capabilities to managing it, to understanding where it is in the broader ecosystem. And pretty much that's how we move forward because the 22 product divisions we have are run very independently, each with their own management team, each run to preserve, to sustain and grow, each are dealt particular revenue.
And they sit on a common platform and the common platform that we have is support services, the useful thing that we have, but each product division run fairly independently. But they have to have strong technology and be critical to customers and be able to enhance, to put it directly, the technology roadmap. VMware is totally aligned in that regard.
It has great technology virtualization, which has developed and refined over the years, and it has a very, very good pool of talented engineers, which is also very key to the criteria we use to create technology. And it has an amazing opportunity to grow that has never fully been realized. That is the whole reason why we do it.
My vision in acquiring VMware is simply to realize that vision they have in place. Essentially when I say vision, is to is to execute and make happen What is the opportunity in front of VMware? And that opportunity is very simple. With virtualization technology, in simple terms, what enterprises can do with this technology is create and build data centres of their own on-prem, as they call it, which could be totally software-defined as opposed to the mixed environment that exists today, which tends to exist today, which is they have software virtualization or software definition and manage on parts of the data centre like computing servers, but not on other aspects of it.
This is intended to create, to have the technology that can go the whole stack and create a present cloud environment on-prem, similar in productivity, efficiency, ease of use, resiliency, elasticity that you get going to public clouds. Public cloud is what attracts people because it's very resilient. It's ease of use, because you run everything on software in the data centre, you don't have hardware confusing and making it less productive. You're running on software.
Well, the same technology as this is in VMware, they just haven't got most of their customers adopting it as a great technology. So, my vision or my goal is to get that adopted. And that's not as easy as it seems because it requires investment. It requires investment in R&D to make the software stack more much more easy to use, much more of a plug and play deployment by companies out there. Because the hyperscalers, as they call the public cloud, have the skill set, have the scale to invest in a huge amount. VMware as a standalone public company does not, they are underinvested. But with Broadcom, we'll make enough investments. Back to my overarching model in Broadcom, making the right investments to be successful in that area, and that's what we will do create this concept of private cloud.
And that's just the steppingstone in my view to then taking this. If companies can run on-prem the VMware private cloud, they can then take the same application workloads to public cloud without having to re-engineer and get locked into any particular public cloud. As you know, each public cloud has their own version. This is a license model where you can take the same application software tools, run your application into any public cloud and back again: the hybrid, the concept of a hybrid and multi-cloud. And that's the second, I call it, phase of this dream or vision.

Bola Rotibi:
Which is great actually, because I know the focus around cloud and virtualization environments is a strong heritage for VMware, and this takes us quite nicely to our third question, which is around where are you looking to fill in the gaps, or where are you likely to fit in the places that will really supercharge the growth capabilities and prospects of VMware?
But also thinking along that basis, we'll take on the big innovations in research and development and talent?
I know you've already talked about talent and talked about the cloud, but I'm especially interested in some of the other innovations that you see on the horizon, especially the big things that you are possibly looking to invest in and what that might mean on the talent side of things.

Hock Tan:
Okay, that's for VMware. Well, to begin with, basically, this is like the first step they need to make the software stack to create a software-defined data centre easy to deploy. Right now, it's not. And it needs a lot more investment to do that. Something like a billion dollars more a year just in R&D to get that software stack very interoperable with each other on-prem, but also to create that stack to work in each of the three major public clouds out there.
And that's the big part of the investment, because then if you have a similar stack sitting across in public cloud and on prem, any enterprise can run can have choice of running their application workloads very easily, securely, seamlessly on prem or any of the public clouds. And even pulling it out when they have to. And we want to do it in a manner that is cost-neutral to the enterprise.
So, this truly comes into being the concept of a multi-cloud strategy for enterprise and how enterprise chose to run application that they can run the same application workload either on their own data centres or across any public cloud and not be constrained or penalized in doing it. We would love to be able to do that because we don't run the data centres. The enterprise do, the hyperscalers do. All we do is enable through technology. That's the same basic virtualization technology. The ability for all enterprises to run, to operate in that manner and be very flexible.
The second part investment is once you get the cloud environment, to be able to then deploy and have enterprises consume services on top of that software-defined data centre and to therefore invest in more of those services so that it basically levels the playing field for enterprises when they chose to run the private cloud.
Otherwise, many of them say, "sure, I can do a cloud environment, but you know, many other hyperscalers can put in additional services when those AI services, analytics services, disaster recovery, all those various services, automation". Well, our idea is also to invest to enable creation of those services on private cloud, not just on public cloud.

Bola Rotibi:
So, in other words, one of the things I'm kind of hearing from you, what you're saying is that it's really about making sure that everything is frictionless and seamless and that people can be as efficient and I guess as effective as possible. But it's also about them having choice, which I think is going to be music to a lot of people's ears, especially customers.
And I think this is great. But what I want to sort of dig a little bit deeper into when I ask this next question is that we talk about relationships and we know that relationships are obviously important to all IT providers, but what do you think it is that you do better for your customers and partners than your competitors?
And I do have sort of an inkling of it, but I'd love to hear what your specific thoughts are on this. I'm especially keen to hear what the one or two things that you broadly think.

Hock Tan:
Broadly, let me start with Broadcom as it is today, and then I'll touch on before I leave this subject on VMware specifically. But let me say Broadcom, you know, we are innovating. We are a company that has constantly innovated. See, in technology, you have to do it or you become irrelevant.

Bola Rotibi:
That is true.

Hock Tan:
So, we always come out with products, hardware, even software, especially in hardware. And that is better, whether it's lower power, very important these days, higher speeds, higher bandwidth, additional features nowadays equally, analysis, analytics, all that — the new generation comes out better, better and better.
And we don't do that in a vacuum, it'd be impossible. I have great engineers and I'll touch on that in a subsequent question. But for me, we can't do it in isolation. We work with our customers to define what they need as the next generation and the next. And we create the technology together. So, it's always a very collaborative effort. I won't go as far as to say, we are partners, because they are customers, and customers obviously are something that we revere and revere very much. But virtually we are partners.
We cannot do it without the customers willing to use it, consume it and adopt it. That's a basic concept. And in hardware, partners and customers are big part of the partners. Original equipment manufacturers, who integrate the systems, hardware and software, and sell systems to end users, are also kind of partners, and that's critical.
In VMware, no different, except even more extensive. Remember I mentioned about creating this software, a better software stack to create software-defined? Well, even as we provide and license this technology to end users, big end users who have the wherewithal to create their private cloud, they generally need support and skills to adopt it and to adopt it well.
And that's where partnership comes into being, because VMware by itself does not have enough skilled people to support that many customers who are in a world who want it. So, what we need to do, and this is one of the focus I'm going to put on once we own VMware, is to create, foster and train a global system integrator ecosystem.
In other words, consultants, architects and professional services out there under companies like Accenture, Deloitte, HCL, those global system integrators, to understand how to use the VMware software stack and enable the customers, the partners who are the big enterprises in the world, set up your own private cloud. We have to create that ecosystem and that's an enormous investment which VMware on its own has financial issues being able to do on their own.
We're talking about investing, in my view, a billion dollars more a year just to be able to create that ecosystem. And it will be a journey, in my view, that will take three years to get to the point where we will start to be able to deploy private cloud in a very scaled manner to many enterprises out there. So that even more, even more so shows the need for partnership.

Bola Rotibi:
To be honest with you, this is actually exciting. And in fact, my next question was to see what the messages that is going to be reassuring, exciting for the future for existing VMware partners and customers. But the fact that you've mentioned that you're going to invest $1 billion per year for the next three years to build out that ecosystem and not just with system integrators but all sorts of partners and really focus on that partner community. I think that's going to be really something that that customers and partners are going to want to hear and knowing that you're going to invest in that is really fantastic news.
I'm going to quickly move on to the next question, because one of the things that we all talk about is around energy consumption. You've already mentioned it earlier, and the price of doing business seems more core than ever for so many companies, their customers, partners and communities. In fact, we've only ourselves just come off the back of our own sustainability study.
So, what does sustainability mean to you and how do you think Broadcom, as a company with its extensive portfolio, is going to achieve it for its own workforce, partners and customers?

Hock Tan:
Well, we look at it holistically, but in several levels and dimensions. I mean, we've lived it as a company, because if you are technology company, it gives you a certain degree of, call it, freedom in driving, particularly your products. It's a product that impacts, influences, shapes the society, the community-minded society. Yeah, the global community around using your products in basically making themselves more efficient and more effective in information technology.
We have a hand directly in doing that, and the simplest way to describe it is we approach it is two simple ways. One is we make sure the products we do address the bigger agenda. The biggest agenda is very low power. I mean, if I take a particular product we have that was 10 years ago, even five years ago to the latest generation product, I would tell you we would have double bandwidth easily and we would have reduced the power on that same class of product from the generation five years ago back to today by half. We have doubled the bandwidth and reduced the power by half. Think about that. And it's an exponential factor as we focus our expertise and skill set on doing that.
At the end of the day, it's the right thing to do. And for many other customers who run data centres, and that includes the hyperscalers, they are driven very much, for instance, on low carbon footprint, low power. And our products over the last five, 10 years have exactly driven that approach totally, that whole model.
And while we're doing that, we do not spend or you do not expect a huge carbon footprint in creating that. It comes to the time to a holistic model of how we create technology. In each of our 22 product visions, there are staff with their own independent core group of technologies, architects, design engineers, development engineers, and we are rather proud of the fact, it's part of the business model, that we hire, train and keep, retain, I would like to say, the best of the best globally.
It is in each of that team and what that does is it makes it a very, not only effective outcome, it's also very efficient. To give you a sense, we have our revenue, which reaches $3 billion. Today, we have 20,000 employees in Broadcom, of which 16,000 are R&D engineers. I like that ratio, that is in our DNA.

Bola Rotibi:
It's a good ratio. It's brilliant to hear you talk about power reduction. And certainly, that is something that is very tangible for providers, especially infrastructure and technology providers. As you say, for Broadcom, it will fundamentally be your control to help customers ensure that they're getting the most from power efficient solutions for their own capabilities and operations and sustainability operations or sustainable operations. So that's all brilliant.
I guess to a certain extent, as we build out more of that sustainability story, we're going to hear lots more about where this is going to take you as a company and what else you're going to be doing going forward.
But as we come to the end of our discussion, which has been really great and something I've very much enjoyed, I'd like to wrap up with some quickfire questions or pointers, as you might say.
And I think, you know, it's something that I think our listeners would be really interested in hearing, is in, you know, some of the things that you focus on and maybe the one or two things that you focus on when it comes to leadership? And just as one final thing, how would you sum up what's next for Broadcom?

Hock Tan:
Well, I think I've enjoyed it. I've been running this company for 17 years, so you might say I'm a slow learner, on every aspect of it. But one thing it does is, as you do something and we focus on the model, the business model, the business overarching strategy as a technology company for Broadcom in a making its mark in the world, hasn't changed.
We have refined it, we've tweaked it, we've gotten better at it. But it hasn't changed. It still makes sense today. And in any of the things we do, by the way, even on ESG, as you touched on last, I should add, we were just named in late last year by Newsweek as one of the best ESG sustainable-responsible companies in the world.

Bola Rotibi:
That's a great accolade.

Hock Tan:
So, we're very proud of that. We're proud of that because it is built into our entire thinking. As I said before, in the way we look at people, in the way we look at our community, in the way we look at the way we develop our products for the ecosystem, it's all driven in and we're very gratified that it got recognized.
But broader than that. Leadership, my view, it's about longevity. I hate to say that! Because you learn, and the best way to learn, even as you do the same thing again and again, you always have to learn by the mistakes you make. Not really by the successes!

Bola Rotibi:
That is true.

Hock Tan:
And if you stick around long enough, you make a hell of a lot more mistakes than anybody else. And then you get smarter not to do a better job next time. So, the fact of the matter is, if you do what you do well and you keep focussing on doing it better, you'll become the natural leader. Whether it's me individually, or the businesses I run.
It's about being a market leader, a product leader, a technology leader in the world. It is about being focussed on doing the best you can in the space you are, because at the end of the day, even technology I recognize is evolutionary. This is not about a "meteor hitting Earth" kind of event, what people like to call disruptive.
It's not, technology is truly evolutionary, and our entire business model predicates on the thesis that the technology we develop is a roadmap, is just a journey, it's evolutionary, and it gets better and better as time progresses. And that's what makes us very relevant.

Bola Rotibi:
I think that's a really brilliant way to sort of sum everything up because, you know, throughout this conversation we've heard you talk about, you know, the start, you know, where you started Broadcom and how it's grown as a company and growth is something that is part of your DNA, as is the engineering aspects with the sort of like the high ratio of engineers in the organization.
So that's something that is going to be really exciting. So, we can see that's going to be something that's part of the future going forward. And so, I think and that's longevity, you know, making mistakes, which is great. You know, you learn from your mistakes. We always say that even as parents, kids growing up making mistakes, we learn from them, which is great.
And so I would say keep on making those mistakes but you keep learning is what I would say.
So, Hock, it's been great talking to you and hearing what's in store for the future for Broadcom and how clients, partners and the workforce can look forward to the vision that you are setting out.
I'm sure that our listeners will have enjoyed hearing your insights, so, I want to say a big thank you for taking the time to speak to me. I'd like to also say to our audience to tune into the next CCS Insight podcast episode. But until then, I'll say goodbye and all the best.

Hock Tan:
Bola, enjoyed being here. Thank you for having me.

Bola Rotibi:
Thank you.

Note: Hock Tan's comments on investments and plans for VMware are to be understood as referring to future circumstances in which Broadcom has closed its proposed acquisition of VMware.