Broadcom Announced the Acquisition of VMware for $61 Billion

The semiconductor conglomerate Broadcom announced that it was about to acquire the leading multi-cloud services provider VMware for $61 Billion in cash and stock on May 26, 2022 based on the closing price of Broadcom common stock of the previous day. If the agreement wins majority of votes from the chair board, which seems very promising as the largest shareholder of VMware, its CEO Michael Dell with a 40.2% stake, released the supporting statement on Thursday, the merger is expected to be completed in Broadcom’s fiscal year 2023. The price makes the buying one of the largest deals ever in tech industry.

Who is buying VMware?

Broadcom Inc. is a semiconductor and infrastructure software developer, manufacturer, and global supplier based in the United States. Founded in 1960s, Broadcom has rich roots in AT&T/Bell Labs, Lucent and Hewlett-Packard/Agilent. Now Broadcom is more of a takeover expert that purchases companies with legacy technology and manages to run them productively. In 2016, Broadcom purchased Brocade Communications Systems for $5.9B. In 2018, it acquired CA Technologies for $19B and again in 2019, Symantec’s enterprise security business was taken over by the company for $10.7B.

Why VMware?

VMware is a pioneer and major provider of virtualizing networking technology and storage, then evolves to a hybrid cloud and digital workspace leader. While the concept of virtualization dates back to mainframe computers, VMware was the first to implement it in desktop computers. Based on x86 architecture, VMware innovated and successfully transformed x86 server-based computing to the virtualization software for developers and teams to run virtual machines.

Today, VMware's multi-cloud portfolio, which includes application modernization, cloud management, desktop, server, networking, security, and anywhere workspaces, provides a flexible digital foundation on which the world's most important and complex workloads are built, managed, connected, and protected for the benefit of enterprises across industries, which counts more than 500,000 customers globally.

In 2022, VMware's annual revenue was $12.851 billion, up 9.21% from the previous year. Within three years of post-closing, the acquisition is expected to generate $8.5 billion in pro forma EBITDA. Software revenue is expected to account for roughly 49% of total Broadcom revenue, according to pro forma in fiscal year 2021. Together, the semiconductor giant and the virtualization leader will form a tech behemoth with over 50,000 employees and a market capitalization of more than $250 billion.

What does this transaction mean for both parties?

For industry: This would be the second-largest tech deal of the year, trailing only Microsoft's acquisition of Activision Blizzard, and would help Broadcom diversify beyond its semiconductor roots. VMware's CEO, Raghu Raghuram stated that by working together, the two will be able to provide customers with even more choice, value, and innovation, allowing them to thrive in this increasingly complicated multi-cloud era.

For Broadcom: The buyout gives the expanding Broadcom control over a once-critical layer for software deployment. The company can transition the focus on chip and hardware making to profitable virtualization software operation since the chip market has been hit hard by the Covid-19 with materials and shipping supply problems.

For VMware: VMware now has access to the hardware layer, as well as the hardware business's long-term stability.

Does the takeover affect users?

Fears over price hikes, cost reduction, and stunted innovation wide spread among users, partners and distributors. And there are traces detected from the acquired companies by Broadcom. In the wake of Broadcom buyout of CA and Symantec is the surged price, poor customer support and stagnant product innovation. And their costs have been cut by 60% to 70%, a report by Sanford C. Bernstein & Co suggests.

VMware multi-cloud innovation and strong channel hold are left hanging in the air now with Broadcom, says the CEO of a solution provider, because Broadcom has a bunch of dinosaur software technology that has been milked for renewals. Broadcom has to demonstrate that it will transform and integrate the technologies for VMware rather than maintain and squeeze it.

The uncertainty of VMware takeover is how this transaction will impact VMware’s software licensing with Dell Technologies and Hewlett, which closely links to the existing software license support for customers.

No one knows exactly the answers to these questions until the deal is due in 2023, and customers will have to wait and see.

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