Broadcom to invest $2B annually into VMware post acquisition

LAS VEGAS – VMware Explore – Broadcom plans to finalize its acquisition of VMware by October 31 and will pour $2 billion annually into research and development at VMware. October marks the end of Broadcom's fiscal year.

"Once this transaction closes, we will focus on investing in VMware products and services," said Broadcom CEO Hock Tan. "In fact, Broadcom will immediately invest an additional $2 billion a year to better unlock customer value."

In addition to focusing on R&D, Broadcom's investment will support VMware's partner professional services and further the company's strategy to assist customers in efficiently running workloads in multi-cloud environments, he added.

Hock Tan, CEO of Broadcom, updated attendees at VMware Explore about the planned VMware acquisition.
(Image source: Broadcom)

Tan's assurances come after the UK's competition regulator gave the OK to Broadcom's planned purchase of VMware for $69 billion on Monday, "following an in-depth phase-2 probe," reported Reuters.

"The Competition and Markets Authority (CMA) in July provisionally cleared the deal, saying it would not weaken competition in the supply of critical computer server products," Reuters said.

Rumors started circulating about Broadcom's interest in VMware in May 2022. VMware was previously acquired by Dell in 2016 as part of Dell's $67 billion takeover of EMC, an IT company that bought VMware in 2003 for $635 million.

Bogged down by nearly $40 billion in total debt, Dell wrapped up a VMware spinoff in November 2021.

VMware CEO Raghu Raghuram said that while VMware will continue to operate independently within Broadcom, as it did under Dell's purview, the company will be wholly owned by Broadcom. Under Dell, VMware was 80% owned by Dell and 20% publicly owned, maintaining its own board and stock.

"Now, post the close of this transaction, we will be 100% owned by Broadcom," said Raghuram in a press conference today. "So we will not have our own stock ticker, for example. We will not have our own board. We will just offer it as part of Broadcom."

But uncertainty remains about whether VMware can bring a financial lift to Broadcom. VMware has struggled with sales growth in recent years, averaging only 13% annually over the five-year period of 2017-2021.

"Nor does VMware look very profitable alongside Broadcom," reported Light Reading's Iain Morris in May 2022. "In its last fiscal year, it recorded an operating margin of about 19%, and its net income fell 12%, to $1.8 billion."

During today's press conference, some reporters expressed concern over VMware's ability to turn the tide. VMware's executives were bullish about new services in edge computing, multi-cloud workload management, generative AI services and more during the VMware Explore event this week, all of which could boost VMware's bottom line.

"All these things drive increased value for customers" and in turn will bolster VMware's revenue, said Raghuram.

More on those announcements in the coming days as we continue our coverage of VMware Explore.

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— Kelsey Kusterer Ziser, Senior Editor, Light Reading