Last quarter, Broadcom’s revenue fell by $600 million, but costs fell at a faster rate by $700 million. The company appears to be on track to higher margins as planned.

VMware generated revenue of $2.7 billion in the second quarter of 2024. That’s significantly less than last year, when VMware was not yet owned by Broadcom. In the same quarter of 2023, the company raised another $3.28 billion.

This decline is not surprising and is part of the strategy of Broadcom and CEO Hock Tan. The decline in revenue can be largely explained by the divestment of Carbon Black from the VMware portfolio to Symantec.

Lower costs (and more layoffs?)

The fact that Broadcom’s revenue is down $600 million from the previous quarter doesn’t sound so dramatic considering its costs, which are down from $2.3 billion per quarter to $1.6 billion. Broadcom is targeting quarterly costs of $1.4 billion by the end of the year and is expected to reach $1.3 billion, with $1.2 billion being the long-term goal.

The strategy is clear: a drop in sales is not a problem, as costs are falling more drastically. What remains of VMware under Broadcom will be an organization with significantly higher margins. Rumors are already circulating in the corridors about further staff cuts.

Tailor-made for the greatest

Broadcom’s reforms of VMware have met with little understanding among the majority of its customers. Both the Belgian CIOs’ industry association and the European cloud providers’ interest group have already called on Europe to take action, but to no avail.

Broadcom itself does not seem to have much interest in the majority of its customers, with the exception of the very large ones. After all, all the reforms that the company has implemented are tailor-made for these global companies. Of the 10,000 largest customers, 3,000 have already opted for VMware’s new licensing model with multi-year contracts.

In the long term, Tan is aiming for even lower costs, but also higher revenues. High margins for Broadcom and its shareholders are the ultimate goal of the acquisition and this is also reflected in the quarterly results.