Occasional issues can arise if a Windows VM has VMware Tools upgrade configured to be performed at a power cycle when combined with Windows System Updates. On a guest reboot, the VMware Tools upgrade may overlap with an in-progress Windows System Update that required a system reboot. This overlap can cause some VMware kernel drivers to not upgrade and fail with Windows system error 0x800f0246. The error can cause the VMware Tools installer to rollback the upgrade, removing VMware Tools and upgraded VMware kernel drivers from the guest.

After running a Windows update, guest networking including network configuration is lost and/or other VMware drivers along with VMware Tools are removed from the guest.

This issue is seen when VMware Tools upgrade policy configured to perform VMware Tools upgrade at power cycle. Such VMs have following setting in their VM configuration file (vm.vmx file): tools.upgrade.policy = "upgradeAtPowerCycle"

In vSphere UI this setting can be seen or modified from:
VM > Edit Settings > VM Options > VMware Tools > Tools Upgrades > "Check and upgrade VMware Tools before each power on" checkbox

This setting can be modified for a running VM without power cycling the VM.

The VMware Tools 11.3.5 and later installer handles this system error condition by displaying a message to the end-user, then allows the installation to proceed.
After upgrade completion, including any system restart, run the VMware Tools installer and select the repair option to replace any drivers that failed to upgrade.

Depending on the configuration different approaches can be applied to avoid this issue from occurring:

• ESXi Hosts ProductLocker Configured to a Datastore (ProductLocker managed by admin): Deploy new VMware Tools in ProductLocker only after completing Windows system update in all the VMs running on the ESXi hosts using that ProductLocker.

NOTE: If ProductLocker has already been updated with newer VMware Tools, disabling VMware Tools upgrade at power cycle temporarily for the critical VMs would avoid the overlapping VMware Tools upgrades. VMware Tools upgrade at power cycle policy can be re-enabled for the VM once Windows system update is complete.

• ESXi Hosts using default ProductLocker (ProductLocker managed as part of ESXi updates): Perform ESXi updates only after completing Windows system update in all the VMs running on the ESXi host/DRS cluster.

NOTE: If ESXi update has already been done, disabling VMware Tools upgrade at power cycle temporarily for the critical VMs would avoid the overlapping VMware Tools upgrades. VMware Tools upgrade at power cycle policy can be re-enabled for the VM once Windows system update is complete.

•  For Windows VMs using automatic updates it is hard to predict the time of Windows system update. So, temporarily switch the VMware Tools upgrade policy from performing upgrade at power cycle to manual. This would allow for VMware Tools to be upgraded when the Windows system is at a more stable point.