Service Provider Cloud

Broadcom makes massive $61B bid for VMware

After rumors surfaced earlier this week indicating a deal was imminent, chipmaker Broadcom on Thursday morning announced its official intent to acquire cloud management company VMware in a transaction worth an astounding $61 billion.

Broadly, the deal would be one of the biggest in the technology space in years, sitting alongside the likes of Dell's purchase of EMC (VMware's former owner) for $67 billion in 2015, and Microsoft's $68.7 billion bid for video game company Activision Blizzard. (Dell completed a VMware spinoff last November.)

The transaction also represents the seemingly insatiable desire of Broadcom CEO Hock Tan for megadeals. In 2018, he was thwarted in his efforts to buy Qualcomm, a semiconductor rival, by former president Donald Trump, who worried the deal would threaten national security.

(Source: Unsplash)
(Source: Unsplash)

As Reuters noted, Broadcom's offer price of $142.50 per VMware share represents a premium of nearly 49% compared with VMware's share price earlier this week during early rumors of the deal. Shares in both companies were up slightly in midmorning trading Thursday after the announcement of the deal.

However, the transaction comes with a big caveat: It is expected to close sometime early next year, but VMware is allowed to solicit offers from other companies through July 5.

The telecom angle

The transaction is important to telecom network operators for a variety of reasons. Broadcom, for its part, supplies some of the core chips for cable modems and other gadgets, including those that run Wi-Fi. And VMware is an active player in the burgeoning "cloud native" space, whereby network operators run their software in the cloud. Indeed, VMware supplies a core part of the cloud platform that Dish Network plans to use to run its forthcoming 5G network in the US.

In its release, Broadcom explained the benefits of the transaction this way: "By bringing together the complementary Broadcom Software portfolio with the leading VMware platform, the combined company will provide enterprise customers an expanded platform of critical infrastructure solutions to accelerate innovation and address the most complex information technology infrastructure needs. The combined solutions will enable customers, including leaders in all industry verticals, greater choice and flexibility to build, run, manage, connect and protect applications at scale across diversified, distributed environments, regardless of where they run: from the data center, to any cloud and to edge-computing. With the combined company's shared focus on technology innovation and significant research and development expenditures, Broadcom will deliver compelling benefits for customers and partners."

However, as Reuters reported, Broadcom doesn't have a history of investing heavily in research and development, which could cast a cloud over VMware supporters hoping to use the company to navigate the tumultuous market for cloud networking.

"VMware should take heed of Symantec and CA Technologies’ experiences following their acquisition by Broadcom. CA Technologies reportedly saw a 40% reduction in US headcount and employee termination costs were also high at Symantec," analyst David Bicknell, with research and consulting firm GlobalData, said in a statement. "VMware currently has a strong reputation for its cybersecurity capability in safeguarding endpoints, workloads, and containers. Broadcom’s best shot at making this deal work is to let profitable VMware be VMware."

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Mike Dano, Editorial Director, 5G & Mobile Strategies, Light Reading | @mikeddano

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