The news: Broadcom agreed yesterday to buy VMware for $61 billion, opening up multiple opportunities in corporate solutions, data center software, edge computing, and Internet of Things (IoT), per the New York Times.
- Broadcom, which has steadily ramped up software acquisitions, will spend the equivalent of $138.23 per VMware share in a cash-and-stock-deal, more than 40% higher than VMware’s stock price before the announcement.
- The boards of both companies have approved the deal, which is expected to close during Broadcom’s next fiscal year, per The Wall Street Journal.
Building an IoT and edge-computing giant: The combination of Broadcom’s mobile phone and telecom network chips and VMware’s software positions Broadcom as a leader in data-center and cloud-computing solutions.
- The deal is the second-biggest tech acquisition this year behind Microsoft’s monumental purchase of Activision Blizzard for $70 billion in January. That deal is expected to close by June 2023.
- A combination of hardware, software, and managed services would allow Broadcom to own the connective tissue of future cloud-based IoT deployments in high-growth sectors.
Broadcom is evolving: The chipmaker has been on an acquisition and expansion tear and even tried to buy mobile chipmaker Qualcomm for $103 billion in 2017.
- Broadcom CEO Hock E. Tan has focused on strategic acquisitions to build up the company. Recent additions include CA Technologies for $18.9 billion in 2017 and Symantec’s security division for $10.7 billion in 2019, further proof of its focus on enterprise software expansion.
- VMware—which has more than 500,000 customers, including the Big Three in cloud, Amazon, Microsoft, and Google—unlocks the growing edge and IoT segment for Broadcom.
- VMware has focused its cloud strategy on hybrid cloud solutions, essentially helping businesses and organizations connect on-premises data centers with managed cloud platforms.
Analyst take: “5G networks have been slow to lower latency—the responsiveness of connections—but it’s coming,” said Yoram Wurmser, principal analyst for Insider Intelligence. “Broadcom is banking that lower latency will unleash a wave of IoT applications and further boost spending on cloud and edge computing, so this acquisition makes a ton of sense for them.”
What’s next? With VMware’s capabilities and existing enterprise customers, Broadcom can now leverage assets to become a leader in multi-cloud services and solutions.