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Comment by shrubble | Hacker News Reader

I am researching whether to buy puts on AVGO (Broadcom, owner of VMware) since I believe their Vmware revenue will crater in 12 months or so. They took on 32 billion in debt to buy VMW also, which will tank their stock price, I think.

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It never takes as little as you (or others, myself included) think it should. Big companies have a lot of inertia and changing anything which is working today, even if it saves a lot, attached your name to the risk it will fail horribly, so you'd be reluctant to suggest it, esp. since it's usually not your own money (your budget maybe, but not your own money).

Broadcom knows this very well and likely turned the price screw exactly right - just before the breaking point for the critical mass of their customers.

What I think will lead to the eventual implosion of VMware's market share, on a longer timescale, is the removal of free ESXi. Many people acquire familiarity with small scale/home/demo labs or PoC prototypes, then they recommend going with what they're familiar with. This led Microsoft where they are now, by always giving big discounts to students and never going too hard on those running cracked copies. They saw it as an investment and they were bloody right. If the product had been better it would completely dominate now, but even as shoddy as it is, it's a huge cash cow.

All of AVGO/Broadcom's moves with VMware have been to keep revenue somewhat steady by focusing on their biggest customers locked into their ecosystem, while drastically cutting back everything else to lower expenses. This should produce excellent short-term financial results which the market will very likely reward with a higher stock price over the next year or two. The board and C-suites know what they are doing.

Of course, destroying the trust they had with their customers means the long-term prospects of the VMware are not so good.

so they sell the husk of VMware back to Dell when they're done.

I'd exercise caution, in my experience, it'll take years for companies to transition from VMware to somewhere else. In the interim, their revenue will most likely pop as they're squeezing the shit out of these unlucky souls.

I concur, being close to the fire it will take years for large organizations to move off their VMware stacks. Inertia of large organizations is a thing, but mostly, there are so many custom integrations made with other systems, lots of them tied up in the vSphere stack.

SDN is one thing but the amount of effort put in vROPS / vRA / vRO etc is not easily replaced. Workflows integrating with backups, CMDB, IAM, Security and what not have no catch all migration path with some import wizards.

Meanwhile, Broadcom will happily litigate where necessary and invoice their way to a higher stock price.

$0.02

It’s not about whether you think their revenue will crater (or any other fundamentals).

It’s about answering the question: Why is the current price of puts wrong?

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