Is Chipmaker Broadcom Planning To Buy Cloud Company VMware? Explained

Broadcom Inc is in talks to acquire VMware Inc, a cloud service provider. Let’s see why Chipmaker Broadcom Planning To Buy Cloud Company VMware.

Chipmaker Broadcom Planning To Buy Cloud Company VMware

According to people familiar with the matter, Broadcom Inc. is in talks to acquire cloud computing company VMware Inc., setting up a blockbuster tech deal that would vault the chipmaker into a highly specialized area of software.

The discussions are ongoing, and there is no guarantee that they will result in a purchase, according to the people who asked not to be identified because the matter is private. VMware is currently valued at around $40 billion in the market. The potential deal price would be higher if a typical premium was assumed, though the terms under consideration could not be learned.

The deal would continue Broadcom Chief Executive Officer Hock Tan’s acquisition spree, which has seen him build one of the chip industry’s largest and most varied businesses. Broadcom purchased CA Technologies in 2018 and Symantec Corp.’s enterprise security unit in 2019. The software has been a primary focus in recent years.

VMware’s spokesperson declined to comment. Broadcom’s spokesperson was unavailable for comment. Tan told analysts on a post-earnings call in March that Broadcom may make a “good size” purchase.

After Bloomberg News’ article, Wells Fargo analysts noted, “Investors have been more interested in Broadcom’s desire for another strategic or platform enterprise software acquisition—especially given the recent reduction in software valuation.” “A VMware acquisition would be regarded important, given Broadcom’s focus on developing a more comprehensive enterprise infrastructure software strategy.”

Broadcom manufactures a wide spectrum of electronics, with devices ranging from the iPhone to industrial machinery. However, data centers have become a crucial source of growth for the corporation, and expanding its software portfolio gives it more avenues to target that market.

Broadcom was previously in talks to buy SAS Institute Inc., a privately held software company with a market capitalization of $15 billion to $20 billion. However, those talks concluded without a settlement last year.

Chipmaker Broadcom talks to Cloud Company VMware

EMC Corp., a storage technology company, bought VMware in 2004. Three years later, as part of VMware’s initial public offering, that business sold a portion of its ownership. When Dell Technologies Inc. bought EMC in 2016, it took over the business. Last year, VMware was spun out from Dell.

According to Bloomberg data, Michael Dell and private equity company Silver Lake remain the leading investors in VMware.

Broadcom’s dependency on semiconductors could be reduced with software. However, investors have not always praised its prior excursions into that sector. Tan claims that he seeks out businesses that are “franchises,” or businesses that have a solid market position and can be made more profitable without a large investment.

Chipmakers such as Broadcom have seen a surge in sales in recent years, owing to the increased use of semiconductors in more goods as well as the demand for work-from-home technologies during the pandemic. However, Tan has warned that the good times are unlikely to stay.

Tan stated that the semiconductor sector will not be able to maintain its current trend, despite giving an encouraging sales prediction in March. He expects the chip industry to slow to about 5% growth rates shortly.

What happened to a cloud company VMware

According to people familiar with the situation, chipmaker Broadcom Inc is in talks to acquire cloud service provider VMware Inc. According to the sources, negotiations between Broadcom and VMware are ongoing and a deal is not imminent. The terms of the deal under consideration could not be learned.

Following its $18.9 billion acquisition of CA Technologies and its $10.7 billion acquisition of Symantec Corp’s security division in the last four years, Broadcom’s business would be further diversified away from semiconductors and into enterprise software.

Bloomberg News broke the story late on Sunday. Reuters’ requests for comment were not immediately responded to by Broadcom or VMware. VMware’s market capitalization was $40.3 billion as of Friday’s market close.

VMware has long been regarded as one of the most important businesses in the cloud computing market. Large organizations use its services to manage private and public cloud networks, as well as data centers.

However, a recent drop in the company’s stock price has sparked considerable acquisition interest. VMware’s stock finished at $95.71 on Friday, giving it a market capitalization of $40 billion, down roughly half from its 2019 high and 20% below where it was at the start of the year.

The conversations were initially reported by Bloomberg. Both VMware and Broadcom declined to comment. A VMware acquisition would deliver a big financial windfall for Dell. They bought the company in 2016 with private equity firm Silver Lake in a $67 billion takeover of technology behemoth EMC. The transaction was one of the largest in tech history. It was largely funded by using VMware as collateral for more than $50 billion in debt.

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