With the introduction of vSphere VMware also introduced a new hardware level for virtual machines, being version 7. The most important reason for me was that with the new hardware version I got a new NIC, vmxnet3. This one is a lot faster that previous ones and wisely accepted in the operating systems we run in our environment. See VMware Change NIC VM Manually on how to change running VMs to use the new network adapter. Of course, first follow this guideline to upgrade the VMware Tools and the VMs hardware version.

Note: This procedure will cost some downtime. Don't do this during business hours.

In vSphere 4.0 you'll have to manually upgrade the VMware Tools. Log on to the guest using the Virtual Machine console and select VM → Guest → Install/Upgrade VMware Tools. The installation will start within the Guest Operating System, so follow the prompts to upgrade the VMware Tools.

In vSphere 4.1 you have the option to upgrade the VMware Tools automatically. You can do this by right-clicking on the virtual machine and selecting Guest → Install/Upgrade VMware Tools. When prompted, choose to perform an automatic tools upgrade. When the VMware Tools upgrade is complete, the virtual machine will reboot.

Upgrading the hardware could make you loose your network configuration. Or actually, it almost certainly will make you loose your network configuration. There is a workaround available, but it only works before you upgrade the hardware. It comes down to this, before you upgrade the hardware run this command:

C:\Program Files\VMware\VMware Tools>VMUpgradeHelper.exe /s
Net config saved successfully.

This command will save the network configuration into the registry. After the upgrade you can run this command to restore the network configuration:

C:\Program Files\VMware\VMware Tools>VMUpgradeHelper.exe /r
Net config restored successfully.

Look here for the VMware article.

Note: The restoring of the network configuration might also work if you didn't explicitly save the network configuration. By default the upgraded VMWare Tools save the current network configuration to the registry to the HKLM\Software\Vmware, Inc\VMWare Tools\VMupgradehelper\ key.

Note: If you really really want to make sure the network configuration is kept someplace safe consider saving the information like this:

Use the following command to backup your network configuration:

netsh interface dump > netcfg.dat

Use the following command to restore your network configuration:

netsh exec netcfg.dat

Another benefit from this way is that the file is readable by notepad in case restoring fails.

I had one problem though, even though it's meant to also save the DNS suffix this wasn't the case with me.

Follow these guidelined to upgrade the hardware of the VM:

• Shutdown the VM by right clicking the VM and select Power → Shutdown Guest
• Upgrade the virtual machine hardware by right-clicking the virtual machine and selecting Upgrade Virtual Hardware
• Power on the VM after the upgrade is finished. You can keep track of the upgrade in the “Recent Tasks” panel.

After upgrading there are two ways of identifying the hardware level. First in the summary tab of the VM:

And second in the settings window (after clicking 'Edit Settings'):

Be noticed there is a new VMCI device added into your hardware list:

The Virtual Machine Communication Interface (VMCI) is an infrastructure that provides fast and efficient communication between a virtual machine and the host operating system and between two or more virtual machines on the same host. The VMCI SDK facilitates development of applications that use the VMCI infrastructure.

So, first of all, VMCI is fast. Instead of going through 1Gb/s virtual nic to communicate to other VMs, it directly uses memory to exchange data with other VMs on the same host. It can reach up to 24 times as fast as 1Gbps network connection in some cases depending on your physical memory structure.

VMCI basically requires not only OS to support it, it also requires application to use the VMCI stack instead of traditional TCP/IP stack. At this day, not many applications can do that. That’s why it’s disabled by default.

Don't forget to change your NIC to the latest version after you upgrade
VMware KB: Virtual Machine Hardware Versions