Windows Server licensing is always applied to the physical hosts, not to the number of virtual machines. This means that in a VMware cluster, every physical core in each host must be licensed. Windows Server Datacenter edition requires that all physical CPU cores in each server are licensed, with a minimum of 16 cores per host. Once the physical cores of a host are fully licensed with Datacenter edition, that host is allowed to run unlimited Windows Server VMs.
Because the customer has three VMware hosts in a cluster, the correct approach is to identify how many physical CPU cores each host has. A typical configuration might be two CPUs with 16 cores each, which would equal 32 cores per server. Across three hosts, that totals 96 physical cores that require licensing. If that is the case, all 96 cores must be covered with Windows Server Datacenter licenses in order to legally grant unlimited virtualization rights for the entire cluster.
The customer has purchased 12 Windows Server Datacenter 2025 core licenses, which is almost certainly not enough. Unless these licenses represent multiple packs (for example, twelve 16-core packs), the amount they purchased will not fully license even a single host. Partial licensing does not grant virtualization rights for the whole cluster, and because VMs move between hosts with vMotion/DRS, all hosts in the cluster must be licensed equally.
Effectively, the 12 Datacenter core licenses do not cover the entire cluster. To run all 40 VMs as Windows Server 2025 under Datacenter licensing, they must license all cores in all three hosts. Once they do so, they will then be entitled to run unlimited Windows Server VMs in the cluster.
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hth
Marcin