Broadcom eyes multi-billion dollar deal for VMware

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The tech industry could be ready for its next huge M&A deal after a Bloomberg (opens in a new tab) report, corroborated by Reuters and others, suggests that Broadcom is in talks to acquire VMware.

The sources Bloomberg took the floor to warn that “discussions are ongoing and there is no guarantee that they will result in a purchase”. VMware is currently valued at around $40 billion in the public markets, although its stock rose significantly on news of the deal, giving the company a market capitalization of around $46 billion.

The VMware acquisition would represent the latest in a series of acquisitions for Broadcom, valued at around $222 billion.

VMware Agreement

For its part, VMware was spun off from Dell in a $64 billion deal in November 2021, creating an independent company focused on virtualization and cloud tools.

Broadcom is primarily focused on hardware, making components for the iPhone, industrial equipment, and more. It is, in that sense, an old-school conglomerate.

But the company has increasingly focused on data centers, and the acquisition of VMware offers the company a chance to manufacture both hardware and software for cloud infrastructure.

VMware and Broadcom had no comment for Bloomberg.

Diversification

As you might imagine for a chip company, the global chip supply shortage has been difficult for Broadcom.

A Bloomberg report (opens in a new tab) as of October 2021, said Apple was forced to cut iPhone 13 production targets by 10 million units, in part due to a shortage of Broadcom components.

Research has shown chip delivery times at Broadcom have increased (opens in a new tab) from 12.2 weeks in February 2020 to 22.2 weeks in March 2021, reflecting broader struggles in the industry.

From that perspective, buying VMware makes a lot of sense: it’s a software company, which means margins and earnings remain largely unaffected by macro trends in supply chains.

Broadcom’s recent $20 billion bid for SAS, which sells business intelligence and data management software, failed (opens in a new tab) at the final hurdle, perhaps creating an appetite for a mega deal.

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