Dive Brief:
- Broadcom’s infrastructure software revenues grew 47% year-over-year to $6.7 billion as enterprise customers gravitated to VMware’s private cloud bundle and shifted from perpetual licenses to a subscription-based model, CEO Hock Tan said Thursday.
- Tan said 60% of vSphere virtualization software customers have moved to subscription billing and 70% of the vendor’s 10,000 largest customers have bought into the full-stack VMware Cloud Foundation private cloud bundle, speaking during the company’s Q1 2025 earnings call. Fewer than half of VMware’s largest customers — 4,500 — had adopted VCF the prior quarter.
- On the hardware front, Tan reaffirmed that Broadcom expects AI-driven demand for semiconductors to generate $60 billion to $90 billion in annual revenues by fiscal year 2027 from three specific hyperscalers he did not name. In addition, the company is designing data center hardware for four smaller hyperscaler partners “who are trying to create the same thing as the first three and to run their own frontier models,” Tan said.
Dive Insight:
Despite a rocky start to Broadcom’s acquisition of VMware, the chipmaker saw infrastructure software revenues increase 15% sequentially during the three-month period ending Feb. 2. The segment accounted for 45% of the company’s total quarterly sales, up from 38% a year ago.
“This is the first quarter where the year-on-year comparables include VMware,” Tan said.
VMware customers voiced concerns over costs spiking due to licensing changes announced shortly after the November 2023 merger. Broadcom also oversaw the consolidation of the vast VMware portfolio down to four bundled software packages, including vSphere and VCF.
Vendor changes on the scale of the VMware shifts can be a bitter pill for enterprises to swallow, and AT&T went so far as to file suit against Broadcom for alleged breach of contract. The action was settled last November.
As Broadcom neared the final stages of VMware integration last year, the company turned its focus on a booming AI business, fueled largely by massive hyperscaler investments in data center gear.
Global spending on data center hardware and software hit a record high of $282 billion last year, driven by a 48% jump in public cloud infrastructure spending, according to a Synergy Research Group market analysis.
Broadcom was among the beneficiaries. The company reported a 77% year-over-year spike in quarterly AI revenue, which topped $4 billion.
“We beat our guidance for AI revenue of $3.8 billion due to stronger shipments of networking solutions to hyperscalers on AI,” Tan said. “Our hyperscaler partners continue to invest aggressively in their next-generation frontier models, which do require high-performance accelerators, as well as AI data centers with larger clusters.”
The company also saw an uptick on the enterprise front, where AI costs and data security concerns ignited interest in private cloud deployments.
Broadcom beefed up the VMware Private AI Foundation with Nvidia platform last summer to help enterprises deploy generative AI processing power on-premises. Tan said there are now 39 customers leveraging the platform.
“As large enterprises adopt AI, they have to run their AI workloads on their on-prem data centers,” Tan said. “Just as VCF virtualizes these traditional data centers using CPUs, VCF will also virtualize GPUs on a common platform and enable enterprises to import AI models to run their own data on-prem.”
