During the weekend, rumors began to circulate that chipmaker Broadcom was interested in acquiring VMware, the company best known for commercializing the virtual machine concept that gave birth to cloud computing. Bloomberg first reported the potential deal on Sunday.
VMware will not be cheap. It had a market cap in the neighborhood of $40 billion before the potential deal was reported, a figure that has risen some 20% to about $48 billion today as investors bet Broadcom would pay a hefty premium for it. smaller company. Conversely, Broadcom is down more than 2%.
VMware has expanded into cloud-native technologies over the years and has a diversified business, much of it related to the cloud. Broadcom, on the other hand, isn’t much into that, which makes it seem like a bad match. Probably because it is.
Broadcom builds semiconductors. With a market cap of over $220 billion, the company has tried to diversify in recent years by acquiring software companies to take advantage of software licensing revenues as a hedge against the vagaries of the hardware market, much like other hardware-focused companies — hello, cisco.
It spent more than $18 billion in 2018 to purchase legacy enterprise software company CA Technologies and another $11 billion a year later for Symantec’s legacy security business. Those are very different animals than VMware, which is still a viable company and not some dinosaur with a portfolio of licensing agreements on the books that a company like Broadcom can take advantage of.
So why is the deal in the offing, given the apparent lack of fit from a high-level perspective?
Square Pins, Round Holes
Patrick Moorhead, founder and principal analyst at Moor Insights & Strategies, said it’s not just our lack of imagination: There isn’t really much connective tissue between the two companies. But one thing that many tech companies to do have today is financial liquidity. From that perspective, the potential VMware deal revolves around putting Broadcom’s money into something other than chips.