After you perform an ESX/ESXi upgrade, you can upgrade all of the virtual machines that reside on the host to take advantage of new features.
To determine whether your virtual machines are compatible with the new version of ESXi, see Virtual Machine Compatibility. For a list of hardware features available to virtual machines with each ESXi compatibility setting, see Hardware Features Available with Virtual Machine Compatibility Settings.
The first step in upgrading virtual machines is to upgrade VMware Tools. If the virtual machines do not have VMware Tools installed, you can use the VMware Tools upgrade procedure to install VMware Tools. After you install or upgrade VMware Tools, upgrade the virtual machine compatibility.
Do not use vmware-vmupgrade.exe to upgrade virtual machines.
Upgrading virtual machine hardware is a heavyweight operation that might cause some applications or the operating system to stop working properly.
VMware offers the following tools for upgrading virtual machines:
vSphere Web Client
Requires you to perform the virtual machine upgrade one step at a time, but does not require vSphere Update Manager.
vSphere Update Manager
Automates the process of upgrading and patching virtual machines, ensuring that the steps occur in the correct order. You can use Update Manager to directly upgrade virtual machine hardware, VMware Tools, and virtual appliances. You can also patch and update third-party software running on the virtual machines and virtual appliances. See the Installing and Administering VMware vSphere Update Manager documentation.