Broadcom’s Potential VMware Acquisition: 5 Things About Dell, Stock Prices And Hock Tan To Know

From recent acquisition comments made by Broadcom CEO Hock Tan to VMware’s chairman and Dell Technologies CEO Michael Dell, here are five important things to know about Broadcom’s potential acquisition of VMware.

From Michael Dell And Hock Tan To VMware Project Monterey: 5 Key Things To Know

Broadcom could shake up the software industry with the potential acquisition of VMware, a $12 billion virtualization and hybrid cloud superstar that just recently became an independent company.

Multiple news outlets are reporting today that San Jose, Calif.-based Broadcom is currently in talks to purchase VMware, who’s Palo Alto, Calif.-based headquarters are located close to Broadcom. The deal is in the discussion phase, according to Bloomberg, which first reported the news.

Broadcom has a market cap of $212 billion, while VMware has a market capitalization of around $47 billion.

The deal would provide Broadcom with one of the largest enterprise software companies in the world as well as new technology to boost its semiconductor business. Broadcom is a global technology conglomerate with a wide range of products—from storage and networking devices to chips and sensors.

As data centers become even more critical to power cloud computing, VMware’s software strong position in the data center and push towards hybrid cloud and software-as-a-service (SaaS) is driving consistent sales growth. Both VMware and Broadcom have thousands of channel partners spanning the globe.

Financial investment firm Wells Fargo said today that VMware would make “strategic sense” for Broadcom.

“Investors have been increasingly focused on Broadcom’s appetite for another strategic or platform enterprise software acquisition—especially given the recent compression in software valuation,” said Wells Fargo analysts in a note today. “An acquisition of VMware would be considered as making strategic sense; consistent with Broadcom’s focus on building out a deepening enterprise infrastructure software strategy.”

It wouldn’t be the first time Broadcom has made a massive IT acquisition, and it wouldn’t be the first time VMware has been acquired by a larger technology giant.

From VMware Chairman and Dell Technologies CEO Michael Dell to recent acquisition comments from Broadcom CEO Hock Tan, CRN breaks down the five biggest and most important things to know about Broadcom’s potential acquisition of VMware.

Michael Dell Will Have A Huge Say In The Matter; VMware Recently Gained Its Independence

There’s little doubt that VMware’s largest shareholder and its chairman, Michael Dell, will have a major influence on whether or not an acquisition takes place.

Dell Technologies CEO and founder Michael Dell owns an approximately 41 percent share of VMware and plays a critical role at the company as Chairman of the Board at VMware.

One huge thing to know is that VMware was part of Dell Technologies up until just last year.

In 2016, Dell acquired EMC -- which owned VMware -- for a historic $67 billion. The two companies created innovative joint technologies together, such as market leading VxRail for hyperconverged infrastructure, while also forming successful go-to-market and sales synergies via channel partners.

After five years of being part of Dell Technologies, VMware was spun-out of Dell in November 2021—marking the first time since 2004 that VMware was an independent company.

VMware CEO Raghu Raghuram said that to become the software leader in the multi-cloud world, his company needed its independence.

“If you think about multi-cloud, what we really are saying is that we want to be the Switzerland of the industry. So if you want to be the Switzerland of the industry, then you want to be a standalone independent company, and that’s where we are headed,” Raghuram told CRN last year. “It will allow partners that previously were competitors of Dell to now look at VMware with new life and say: ‘Hey, we can do strategic things with VMware.’ But at the same time, we have a fantastic relationship with Dell who we do a tremendous amount of business with.”

VMware and Dell signed a 5-year commercial agreement last year to continue to work together to help its joint customers.

The Takeaway : Michael Dell will likely have to give his approval of the deal in order for VMware to be acquired by Broadcom.

Broadcom’s History Of Big Acquisitions: Wins And Fails

Broadcom has a history of making large, multi-billion-dollar acquisitions of global IT companies who are already established in the market on a worldwide basis.

In late 2019, Broadcom acquired Symantec’s $2.5 billion Enterprise Security business for a whopping $10.7 billion. Broadcom enhanced its investment around the Symantec enterprise security endpoint, web and data loss protection products, while scaling down investment in other areas where the return was not as profitable.

In late 2018, Broadcom completed its acquisition of software giant CA Technologies for nearly $19 billion in an all-cash deal. The goal with the deal was to build one of the “world’s largest infrastructure technology” companies, said Broadcom CEO Hock Tan at the time.

Additionally, in 2016, Broadcom purchased networking and storage hardware giant Brocade Communications for $5.5 billion.

However, it is key to note that some major attempted acquisitions have fallen through for Broadcom in recent years.

Last year, it was reported that Broadcom was in talks to acquire big data analytics company SAS Institute for somewhere in the range of $15 billion to $20 billion. Last July, the deal ultimately fell through due to reports of SAS Institute’s co-founders changing their minds.

Additionally in 2018, Broadcom withdrew its whopping $117 billion bid to acquire fellow chip giant Qualcomm after receiving pushback from the U.S. government under the former President Donald Trump administration.

The Takeaway : Broadcom has a history of making big acquisitions, yet the company hasn’t pulled the trigger on a major acquisition since 2019.

Broadcom CEO Hock Tan: ‘Good-Sized Acquisition’ Possible

One huge nugget of information that shows Broadcom is seriously considering a large acquisition this year, is what CEO Hock Tan said during the company’s financial earnings call a just few months ago.

In March, Tan said Broadcom has the “capacity to do a good-sized acquisition.”

“We’re still looking for acquisitions. We’ve just been very … thoughtful and selective about the assets we would acquire. But very much so, we’re still in the market to look for great assets to acquire, and we have the capacity to handle it,” said Tan.

Tan said Broadcom hasn’t pulled the trigger on a large acquisition in years as the company has been “earning and generating lots of cash” and paying dividends and maintaining the policy on dividends that Broadcom has outlined for the long term.

“But, we believe we still have the capacity to do a good-sized acquisition,” he said.

The Takeaway : Less than three months ago, Broadcom’s CEO Hock Tan told media and analysts that his company has the capacity to make a large acquisition.

VMware Shares Climbs 17 Percent, Broadcom Stock Down 5 Percent

Broadcom and VMware investors have taken the news of Broadcom’s potential acquisition of VMware in different ways.

VMware’s stock price was up nearly 20 percent to around $115 per share as of 11:00 EDT Monday morning trading, compared to its Friday close of $95.61 per share.

VMware’s market cap increased from $40 billion to $48.3 billion since news of the potential acquisition broke on Monday.

Broadcom’s stock was down nearly 4 percent, however, hovering around $523 per share Monday morning, compared to its $543.34 per share close on Friday.

Broadcom’s market cap fell from around $223 billion on Friday to $213.3 billion as of Monday morning.

The Takeaway : VMware’s stock is soaring with the news, while Broadcom’s stock is trading at a 2022 low of around $515 per share.

VMware’s Project Monterey

There’s no doubt VMware’s massive software portfolio can help make Broadcom become a more significant software player on a global landscape, in addition to gaining access VMware’s big enterprise accounts.

However, there is one notable technology innovation strategy for VMware that particularly fits with Broadcom’s growing semiconductor business: Project Monterey.

First unveiled in 2020, Project Monterey looks to take server CPUs to the next level via Data Processing Units (DPUs). The solution will be integrated into VMware’s flagship and highly popular vSphere server virtualization portfolio.

VMware says modern applications are driving new hardware requirements into data center infrastructure, with DPU accelerators often resulting in creating application-specific silos and overall operational and scaling complexity.

Project Monterey looks to reimagine virtual infrastructure as a distributed control fabric through tight integrations with DPUs. The DPU can offload and accelerate crucial infrastructure services like networking and security from the CPU. The DPU can also be made an infrastructure fabric control point, on par with the x86 CPU, to scale storage, security, networking and manageability functions across the entire IT infrastructure environment.

Last year VMware kicked off the Project Monterey Early Access program to give customers an opportunity to collaborate with VMware to test and validate their use cases.

The Takeaway: Not only will VMware’s broad IT portfolio boost Broadcom, but its upcoming Project Monterey innovation would be a great fit for Broadcom’s semiconductor business.