Summarize this content to 2000 words in 6 paragraphs in Arabic Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.When Broadcom, the $1tn tech group, bought VMware in 2023, the software company’s customers could choose between thousands of different products to help them manage their data centres. During the year after the $69bn deal closed, Broadcom slashed that number to five. The original plan was for just four VMware bundles, according to Hock Tan, Broadcom’s chief executive. But after a backlash from some customers to a series of changes to its software licensing model, a fifth option was added. “One of the commitments we made was to make VMware easier to use and to make the whole availability of the product much simpler,” Tan told the Financial Times in an interview. “Maybe going down to four was a bit too much . . . but we certainly do not need 8,000.” It is the kind of manoeuvre that has won Tan — who told investors last month the deal would deliver a “significantly” greater boost to earnings than the $8.5bn it initially expected — a reputation for ruthlessly effective dealmaking and merger integration, as he hunts for Broadcom’s next big acquisition. Tan is now positioning VMware as the main alternative for companies who do not want to hand over all their data to US cloud providers, especially in Europe, as rapid adoption of artificial intelligence is forcing a rethink of how data centres are run. VMware’s virtualisation system hides the underlying complexity of the various servers, storage and switches that make up a data centre, effectively allowing businesses to run it like a software platform. Tan argues this helps customers spend less on hardware and makes their infrastructure more resilient and secure. Ever since Amazon Web Services invented the modern cloud computing business more than 20 years ago, companies have been forced to weigh the convenience of effectively outsourcing their IT operations to a large online provider, against the control, ownership and complexity of running their own data centres. As businesses scramble to assess and deploy the new wave of AI tools that have emerged in the wake of ChatGPT’s breakout success in the past two years, that element of control has become more important, Tan argues. “The key thing in AI is you use your [own] data, you train your data . . . so you keep your data on [your own] premises,” he said. Sensitivity over data protection has become all the more acute in Europe, where more stringent data rules and a series of regulatory interventions against Big Tech groups is fuelling the concept of “sovereign” data centres. This is where customer or corporate information is stored in a data centre, either by companies themselves or a local cloud provider. For customers in Europe “particularly”, Tan said, VMware was “an alternative . . . to public cloud”. He added: “I’m not surprised we faced noise.” For much of 2024, that “noise” was pretty loud. Broadcom spent much of last year embroiled in a firestorm over how it sold VMware’s tools. Some customers claimed that Broadcom’s shift from one-off, upfront license fees for VMware’s products to an annual subscription had increased their costs several times over. In September, AT&T, the US telecoms group, even filed a lawsuit accusing Broadcom of an “attempt to bully AT&T into paying a king’s ransom for subscriptions AT&T does not want or need”. However, the companies reached a settlement two months later. Chief among Broadcom’s agitators in Europe was the trade group Cloud Infrastructure Services Providers in Europe, which counts Amazon among its members alongside several smaller players. In April, CISPE accused the company of “massive and unjustifiable hikes in prices” that “ threatens the economic viability of many cloud services used by customers in Europe”. Despite estimates from IT consultancy Forrester that 20 per cent of VMware customers would leave in the wake of the changes, Tan insisted its customer churn rate had “not dramatically” changed: “The people who are complaining are the minority — who knows what agenda they may have.” Complaints about the move to subscriptions came from “short-sighted customers [who] tend to forget they paid the [software] license many years ago and don’t think about amortising” its costs over time, he said. “So when initial anger cooled off and customers have a chance to understand the value that is being delivered . . . after a while, they come back,” Tan added. “We are actually quite pleased with the outcome of what we’ve seen so far.” VMware is just the latest in a series of multibillion-dollar software deals made by Tan in recent years, alongside CA and Symantec. But Broadcom’s origins are in semiconductors and networking equipment, and investor excitement about its business making AI custom chips for the likes of Google and Meta propelled its valuation to more than $1tn for the first time last month. Tan said he would consider more deals in either chips or software, despite Broadcom’s $142bn hostile takeover attempt of rival chipmaker Qualcomm in 2017 being blocked by then-US president Donald Trump. Tan later announced he would relocate the company’s headquarters from Singapore back to the US while standing beside Trump in the Oval Office. Tan said it was “too early to tell” if Trump’s second term would make dealmaking easier in the US, adding: “The US is only part of the game. We live in a global market.”
