If chipmaker Broadcom buys virtualisation and multi-cloud vendor VMware as rumoured, enterprise customers should watch out for whether the deal hampers the software vendor’s innovation, according to experts.
Others say the purchase — valued to be about US$60 billion by the the Wall Street Journal — could be a boon for Broadcom by moving forward its years-long efforts to acquire enterprise technology.
Some speculate that the companies could announce the deal May 26 when VMware announces its Fiscal 2023 Q1 results. Neither company has responded to the rumours.
Wells Fargo analysts wrote after Bloomberg News’ reportedthe possible purchase that, “An acquisition of VMware would be considered as making strategic sense; consistent with Broadcom’s focus on building out a deepening enterprise infrastructure software strategy.”
Broadcom has been buying up enterprise technologies for years including network-switching manufacturer Brocade in November 2016 for nearly $6 billion, software-development firm CA Technologies in November 2018 for $19 billion, and the enterprise-security division of Symantec in August 2019 for more than $10 billion.
To purchase VMware, Broadcom might have to offer a substantial premium on VMware’s current share price, according to an analysis by Bloomberg, as other potential buyers may emerge now that word is out that the company may be for sale. Dell Technologies owned VMware until it spun out on its own in 2021, and Michael Dell still owns 40 per cent of VMware stock.
Experts have suggested Cisco, IBM and Red Hat, Intel or another networking vendor looking to expand its software role might be a better fit for owning VMware, but none of them have stepped forward yet.
Former VMware CEO Pat Gelsinger, now CEO of lntel, told CNBC Monday that, “I’m excited about VMware being an innovative partner for the future and any potential transaction for them.”
Intel and VMware integrate their hardware and software to create what Intel calls a cloud-networking fabric, and Gelsinger said that if the deal goes through he hopes the goal is to promote innovation.
“If it’s an economic deal just to route the dollars and cents, then it’s not a good answer... [I]f it doesn’t reinforce innovation, I say no; if it does enable a vibrant cycle of innovation, maybe,” he said.
The deal might be financially sound for Broadcom, but so far the company hasn't had a positive effect on the innovation of the software vendors it's already acquired, said Keith Townsend, principal with The CTO Advisor.
“This is a solid investment for Broadcom. They get to better meet financial goals,” Townsend said. “However, software innovation and integration aren’t at the core of Broadcom’s capabilities. I think they’ve proven that with the post-acquisition resume of both CA and Symantec.”
For example, with Symantec, there was talk of putting encryption and data protection directly on Broadcom chips. “We haven’t seen or heard anything since the acquisition," he said.
Daniel Newman, founding partner and principal analyst of Futurum Research blogged that “the deal from a customer and technology side has been met with some concern as Broadcom has been perhaps understated in its post-acquisition strategy with its prior big software bets.”
Given VMware’s importance in enterprise networks, CIOs might well be concerned about what would happen to the company’s multi-cloud and virtualisation products under Broadcom’s umbrella.
“I’m hearing this a lot, but personally do not find it to be as big of a concern as some,” Newman stated. “Broadcom does have an approach with acquisitions that won’t always make the innovators happy, but the strategy thus far has worked — especially for shareholders.”
Responses on social media to the potential deal call it both the worst thing and the best thing that VMware could do. Its new technology developments would be in the making but how soon they might be realised is unknown.
“There’s the hope that Broadcom plus VMware will lead to some Apple M1-type system-on-a-chip integration for edge uses,” Townsend said. “I don’t see that paying off anytime soon given it took Apple years of development and billions of iPhone sales to perfect their system-on-a-chip design.”
“I don’t see the acquisition as a net positive for customers. There’s no material benefit I can foresee.”