Technology

Broadcom confirms $61bn deal to acquire VMware is going ahead

Chipmaker Broadcom is continuing its buy-and-build strategy to expand into the software market by agreeing to acquire virtualisation giant VMware

Caroline Donnelly

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Published: 26 May 2022 14:36

Chipmaker Broadcom has ended days of speculation about its plans to acquire VMware by confirming it is on course to purchase the virtualisation and multicloud software firm for $61bn.

In a statement outlining the terms and conditions of the deal, the company said the Broadcom Software Group will be renamed VMware, and their software portfolios will effectively be merged.

“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,” said Broadcom in a statement.

“The combined solutions will enable customers…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 datacentre to any cloud and to edge computing.”

Speculation about Broadcom’s intentions to acquire VMware emerged in the wake of a Bloomberg report on 23 May 2022 that claimed the company was in discussions with VMware about a potential takeover as part of its ongoing push to build out its software portfolio.

The latter has been bolstered in recent years by Broadcom’s acquisitions of CA Technologies in 2018 and security software maker Symantec in 2019.

Hock Tan, president and CEO of Broadcom, said the VMware purchase would be “building upon” the company’s proven track record of successful mergers and acquisitions.

“This transaction combines our leading semiconductor and infrastructure software businesses with an iconic pioneer and innovator in enterprise software as we reimagine what we can deliver to our customers as a leading infrastructure technology company,” said Tan.

“We look forward to VMware’s talented team joining Broadcom, further cultivating a shared culture of innovation and driving even greater value for our combined stakeholders, including both sets of shareholders.”

News of the acquisition coincides with the release of VMware’s first-quarter financial results, which saw the firm report a 3% year-on-year rise in total revenue, as well as a 21% year-on-year uptick in subscription and software-as-a-service (SaaS) revenue to $899m.

As a result of its pending purchase by Broadcom, VMware said it will not provide any further guidance for the rest of the financial year and has cancelled a webcast in which it planned to discuss its first-quarter results in full with the analyst community.

In a statement, VMware CEO Raghu Raghuram said the acquisition will ensure the company is well placed to support enterprises as they look to negotiate the multicloud world.

“VMware has been reshaping the IT landscape for the past 24 years, helping out customers become digital businesses,” he said. “We stand for innovation and unwavering support for our customers and their most important business operations, and now we are extending our commitment to exceptional service and innovation by becoming the new software platform for Broadcom.

“Combining our assets and talented team with Broadcom’s existing enterprise software portfolio, all housed under the VMware brand, creates a remarkable enterprise software player. Collectively, we will deliver even more choice, value and innovation to customers, enabling them to thrive in this increasingly complex multicloud era.”

The last few years have seen VMware undergo a series of repositioning exercises as it has sought to build on its reputation as the enterprise market’s go-to supplier for server virtualisation by popularising the notion of software-defined server farms, and helping enterprises build private clouds.

After an abortive attempt to expand into the provision of public cloud services,  the company later began pitching itself as a purveyor of hybrid cloud-enabling technologies and services.

As the public cloud has become an increasingly popular deployment environment for enterprises, the firm has also sought to align itself with the likes of Amazon Web Services (AWS) and Google Cloud, so that enterprises can run workloads running on VMware’s vSphere technology in their respective public clouds.

The company has also gone through a couple changes in ownership, after it was acquired by Dell Technologies in 2015 as part of its purchase of storage giant EMC.

In April 2021, Dell confirmed that it was planning a spin-off of VMware, so it would become a standalone public company, and – just over a year later – it is now on the cusp of being acquired again.

Bola Rotibi, director of software development at IT market watcher CCS Insight, said Broadcom has much to gain from the acquisition, but combining the two companies could prove challenging.

“This [deal] gives Broadcom a much more rounded infrastructure and cloud management story,” she said. “VMware has a well-established footprint in datacentres, giving Broadcom a much stronger position, particularly with the developer community and at the developer operations level.

“However, acquiring VMWare doesn’t immediately transform Broadcom into a software company. This has significant integration risk and Broadcom must prove that it can integrate a silicon, software and services story.”

Rotibi said Broadcom’s “buy-and-build” strategy to expand beyond its roots as a semiconductor manufacturer may not yield the same long-term results and success as investing in its research and development capabilities would.  

“Where other semiconductor companies have invested significantly in R&D to diversify, Broadcom is favouring a short cut to success through acquisition,” she said. “While this will accelerate Broadcom’s software portfolio build-out, its traditionally short-term perspective and aversion to long-term R&D raises significant question marks given the complexity of a silicon and services play.

“Above all, enterprise customers value predictability, consistency and a commitment to a development roadmap. Broadcom’s move will raise significant question marks for customers and will require careful management by all sides if this is to be a success.”





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