The firm most recognized for commercializing the virtual machine concept that gave rise to cloud computing, VMware, was said to be interested in being acquired by chipmaker Broadcom over the weekend. The proposed sale was initially reported by Bloomberg on Sunday. VMware won’t be inexpensive. Its market valuation was roughly $40 billion before news of the prospective merger broke; now, it is estimated to be over $48 billion as a result of wagers made by investors that Broadcom would pay a substantial premium for the smaller business. Broadcom, on the other hand, is down more than 2%.
Over the years, VMware has grown into cloud-native technology and has a diverse range of businesses, many of which are cloud-related. Contrarily, Broadcom isn’t heavily involved in any of things, which makes it look like a terrible match. I believe this is the case. Builder of semiconductors is Broadcom. The corporation, which has a market worth of over $220 billion, has made an effort to diversify recently by buying software firms to benefit from software licensing income as a hedge against the whims of the hardware market, similar to other hardware-focused firms like Cisco.
It invested nearly $18 billion in 2018 to acquire CA Technologies, a legacy provider of corporate software, and a another $11 billion the following year to acquire Symantec’s legacy security division. These are quite different from VMware, a business that is still doing well and isn’t a dinosaur with a portfolio of license agreements that a firm like Broadcom can exploit. Given the obvious lack of fit from a top level viewpoint, why is the transaction in the works?
Round holes and square pegs, it’s not simply our lack of creativity, according to Patrick Moorhead, founder and chief analyst at Moor Insights & Strategies: There isn’t much of a connection between the two businesses. However, financial liquidity is something that many IT businesses today do have. From that standpoint, the possible VMware transaction is all about investing Broadcom’s funds in anything besides processors.
The acquisition of CA Technologies, an enterprise software company with a wide range of products, including a substantial mainframe software tools division, by chipmaker Broadcom last year caused some controversy. It spent about $19 billion to get the right.
The corporation then took out its checkbook once more last week and paid $10.7 billion for Symantec’s enterprise security division. That amounts to over $30 billion for two outdated corporate software firms. These purchases must be the result of a smart strategy, right? Maybe. The issue with older software businesses is this. Even while they may no longer innovate better than their rivals, they still have a backlog of licensing money that looks to be valuable.