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And it’s official. After days of speculation, Broadcom has announced it is acquiring VMware in a massive USD 61 billion cash-and-stock deal. After the transaction is closed, the Broadcom Software Group will rebrand and operate as VMware and incorporate Broadcom’s existing infrastructure and security software solutions as part of an expanded VMware portfolio.
“This is a landmark moment for VMware and provides our shareholders and employees with the opportunity to participate in meaningful upside.”Michael Dell, Chairman of the VMware Board
Eighteen days into January, tech biggie Microsoft announced plans to acquire game giant Activision Blizzard for an all-cash transaction valued at USD 68.7 billion. Then came the controversial Twitter deal in April, where the micro-blogging platform agreed to sell itself to Elon Musk in a USD 44 billion deal (the deal is on hold now). Now comes another biggie.
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Broadcom also announced its second-quarter earnings and reported USD 2.6 billion in net income on a GAAP basis. “Consolidated revenue grew 23% year-over-year to a record $8.1 billion, and operating profit increased 30%,” said Kirsten Spears, CFO of Broadcom.
Even before it was officially confirmed, Bloomberg had reported days back that Broadcom could announce an agreement to acquire cloud-computing company VMware, Inc., based on word from people familiar with the matter.
Before the official announcement, when Bloomberg was interacting with Intel CEO Pat Gelsinger (also the former CEO of VMWare for eight years) at WEF and asked him what he thought about the deal, Gelsinger said, “I was a bit startled over reading about it. If it helps VMWare to be a more compelling, innovative growth story, then it’s good – if it does not, then it’s not good. My feelings are mixed. We have to make sure that VMWare is a great innovation engine for the future.”
Just six months back, VMware was making headlines as Dell completed the spin-off of its 81% equity ownership of VMware, Inc. (Also read: Why Did Dell Spin-Off VMware?) It was also announced during that time that Michael Dell will remain chair and chief executive officer of Dell Technologies and the chair of the VMware board. As per a Bloomberg report, Michael Dell still has a USD 16.2 billion stake in VMware, and he had a significant say in this deal.
Diversify from the core business
In March this year, Broadcom’s CEO Hock Tan, during the Q1 2022 earnings call, said that the company had the “capacity to do a good-sized acquisition.” VMware is a popular choice for large companies to manage private and public cloud networks. Even when talks about this deal were in the rumour stage, it was speculated that Broadcom wanted to acquire VMWare to look forward and move beyond semiconductor chips to the enterprise software space.
Broadcom’s official announcement has shown that the speculations for the agenda behind this acquisition were indeed true. Broadcom said that by bringing together the complementary Broadcom Software portfolio with the 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.”
Hock Tan added that this deal will combine Broadcom’s semiconductor and infrastructure software businesses with an “iconic pioneer and innovator in enterprise software.”
Broadcom also said that this move would help customers with better flexibility to build, run, manage, connect and protect applications at scale across diversified, distributed environments, irrespective of where they run (data centre, cloud and edge-computing).
Will history repeat itself? Past two acquisitions saw layoffs
Broadcom had not made a large acquisition since 2019. In 2018, it completed the acquisition of CA Technologies for USD 18.9 billion. Hock Tan boasted of having a track record of successfully integrating and growing the businesses the company acquired. But all did not go well after that.
Just after the acquisition, media reports started floating that Broadcom is planning to lay off almost 2,000 of its 4,800-plus US-based employees of the former CA.
In 2020, Broadcom sold off Symantec’s Cyber Security Services business to Accenture.
In 2019, Broadcom acquired the enterprise security business of Symantec Corporation for USD 10.7 billion. Reports emerged that in the process of selling its enterprise security business to Broadcom, Symantec was actually laying off 7% of its workforce and closing certain facilities as part of a USD 100 million restructuring program. The layoffs included employees working in administrative services, IT, engineering, corporate responsibility, sales operations, brand management, finance, etc., as per reports.
Broadcom’s acquisitions over the years
Aggressive moves, failed pursuits (read: Qualcomm, SAS)
Hock Tan is known for his bold moves. In 2017, Broadcom tried to buy Qualcomm for USD 117 billion. It was blocked by (then) US President Donald Trump citing national security concerns putting China in an advantageous position in mobile communications. Trump ordered Broadcom and Qualcomm to immediately and permanently abandon the proposed takeover.
In a more recent move, last year in July, WSJ had reported that Broadcom and SAS Institute were discussing a deal, and Broadcom was in talks to pay between USD 15 billion and USD 20 billion to acquire SAS. Then, days after, the same media outlet reported that Broadcom had ended its acquisition discussions with SAS Institute. The reason—the founders of SAS, Jim Goodnight and John Sall, had changed their minds about the sale.