Dell Terminates VMware Resale

Dell terminates its agreement to resell VMware in 60 days. As an SEC notice, this means Dell board level approval. Its serious business.

20240131-17:47 Update: Best I can understand 1) the "distribution" refers to Dell as a wholesaler/distributor 2) that Dell sales were given VMW targets. These will be cancelled in 60 days. Vxrail and other OEM deals are not cancelled (but I speculate they are under threat below).

20240131-18:08 : Rumours that Broadcom terminated OEM agreements with HPE, Cisco, Lenovo and Dell. (this might be a transfer from VMware to Broadcom)

I take the view that Dell can’t be bothered selling to smaller customers if it doesn’t get the biggest customers. Lets face it, the cost of VMware pre-sales headcount is enormous, mostly pointless and it’s not worth it if you don’t have the major account revenue to subsidise the services business. Hardware only makes 5-8% net margin. It’s only worthwhile for Dell in volume and when costs are minimal.

This contract was agreed in 2021 when Dell listed VMware on the public market. I could see that the terms in 2024 are not suitable but its a significant move to terminate instead of renegotiate.

Will Broadcom want to piss off Dell in the long term ? Is this Dell haggling for a better deal or get its customer's back ? Because this is a board level decision, hard to see this as negotiation tactic. Three choices

• Broadcom didn't consider Dell would ditch VMware
• Broadcom thought it was a worthwhile risk
• Broadcom doesn't care what Dell does, its going its own way.

Given that messed up situation with regard to new licensing and pricing, I'm inclined to think that Broadcom's diligence and preparation wasn't good enough. I'm watching for other VMware partners (HPE, Cisco etc) to see what happens there.

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What Do Customers Do Now ?

First, do nothing. I'm waiting to see more statements to major media outlets, notices to SEC from Broadcom (perhaps) to understand more.

For now, I would say Vxrail, VMware Validated Designs, and Dell Apex with VMware will be deprecated in 2024. My assumption is that anything with VMware in the bundle or hyperconverged is not profitable business for Dell.

There are claims that VxRail is covered by a different agreement and not affected. But why would Dell bother with Vxrail and the substabtial costs of integration and validation if they can't sell the licenses. VxRail doesn't sell that much storage or servers. You need huge pre-sales headcount to sell VMware products and without major accounts, I could see its not worthwhile bothering to sell VMware at all.

Validated and Certified VMware Solutions

There are huge costs for Dell's labs to produce validated designs, certify hardware server/storage/networking solutions for the VMware?VCF platform and VxRail. Whats the incentive to do that if Vmware takes the best customers direct ? In the months ahead, customers and resellers will taking integration risks that their hardware is compatible with VMware drivers. Who owns the support for this ?

Which begs the question, will Broadcom allocate resources to software development to conduct testing and maintain compatibility

It won't be hard for Dell to build their HCI competitor in 2025. Or go with IBMhat or Nutanix. They are already committed to Dell Apex branding and product which moves Vmware to back of the solution stack ie. customer don't buy VCF when buying into Dell Apex or HPE Greenlake for that matter.

This is your regular reminder that customers are not significant here. The current fashion is that corporate profits matter much more that customer needs or satisfaction.

What I'm looking for next ?

1. Will HPE and Cisco go down the same road ? If they can't get margin on VMware VCF then why support it ? What about their HCI products ?
2. Why go through the costs and process of validated designs and hardware if you only get a few percent of margin on the hardware ? Will Broadcom pay for testing now that they are selling products direct to customer ?
3. Broadcom ditched the VCF Cloud Provider program. Most of those were buying Dell/HPE/Cisco hardware because they don't have the resource/skills to do hardware integration. A lot of vendor VMware resources were allocated here.
4. We have seen poor preparation from Broadcom around changes to VMware go to market. Is this another example of failure to plan and consider secondary effects ?

Post Publishing Clarifications

1. From a VMW salary slave: This action is not directly about VxRail or PreSales. This is about the Dist-D arrangement where Dell reps carry a VMW number in their quota. That’s usually carried by the resell of ELAs with a few points of margin on top.
2. Vendor salary slaves believe developing a replacement for VCF would be impossible. I would note that cloud startups do this every quarter or so. Look at Oxide Computer Company for example which is better than VMware is many ways. HPE Greenlake is well prepared to exit VMW out of its portfolio. Dell Apex is nascent but moves in the product strategy.

Sources

Link: Dell Ends Agreement With VMware After Broadcom Acquisition — Update | Morningstar - https://www.morningstar.com/news/dow-jones/2024013011796/dell-ends-agreement-with-vmware-after-broadcom-acquisition-update

Link: SEC Filing | Dell Technologies - https://investors.delltechnologies.com/node/15351/html