Broadcom in talks to buy VMware, as chipmakers eye software growth
Chipmakers everywhere are looking at software monetisation opportunities,
Semiconductor firm Broadcom is in talks to buy VMware, which has a market capitalisation of ~$40 billion. That's according to multiple reports that sent VMware shares soaring. Talks are ongoing. An announcement is expected shortly. (Dell Technologies completed the spin-out of its 81% equity ownership in VMware in November.)
The reported acquisition attempt comes as chipmakers everywhere look to software monetisation opportunities as their broader software strategy as Moore's Law gently and expensively runs out of steam -- and customers eye ways to optimise the performance of the silicon powering increasingly demanding software stacks.
Broadcom has not been afraid of bold takeover moves. In 2017 it made a $120+ billion bid for rival Qualcomm but the move was shot down by the Trump administration on national security grounds -- the first time in the Committee on Foreign Investment in the US's history that a transaction was blocked before an acquisition agreement was signed. In 2019 it paid $10.9 billion in cash for Symantec's Enterprise Security business.
(Mobile chipmaking behemoth Broadcom began life as an independent, Singapore-incorporated public company when it was spun out of US-based Agilent -- itself earlier spun out of Hewlett Packard -- in 2005. The majority of its personnel and facilities has remained in the US. It redomiciled in the US from Singapore in 2018.
Broadcom in talks to buy VMware: Annoucement expected early this week
VMware is scheduled to report Q1 results on May 26. Broadcom reports on June 2. After its Dell spin-off, VMware has taken to calling itself the "Switzerland of this new multi-cloud industry."
Its focus, CEO Raghu Raghuram said in February, is in "accelerating multi-cloud innovation and offerings... through the delivery of our VMware Cross-Cloud Services, a set of integrated SaaS offerings designed to deliver customers a faster and smarter path to the cloud" and a "focus on accelerating our subscription and SaaS offerings" (subscription and SaaS revenues are still just 25% of the traditionally VM-focussed firm's overall revenue.)
Chipmakers are increasingly keen to push further into software and in particular SaaS: "Software is the glue that really connects the soul of the hardware" Intel CTO Greg Lavendar said recently and this month's Intel Vision event saw the company trumpet the capabilities of its 17,000 software engineers and demonstrate its software infrastructure initiative: Project Endgame: A "software infrastructure layer that enables devices to harness computing resources from other devices within the network to provide an always-available, low latency, continual compute service."
(Those after more details than this may have to wait. Intel has given the broadly meaningless example of a "demanding GPU workload running on one device can sense and tap into additional graphics processing horsepower from a more powerful machine to enhance the user’s experience" and said that Project Endgame is in development.)
See also: Semiconductor sales hit $40 billion in January
AMD CEO Dr Lisa Su meanwhile added on her most recent earnings call that "we're very engaged on the AI front now continuing our investments in our software stack and working with cloud guys to optimize our software stack", telling analysts "software is very, very important. And software across all of those [hardware] engines is important... You'll see us unify that [Xilinx and AMD's software], and that will be an important part of our road map going forward."
As the end of Moore's Law makes the battle for silicon supremacy an even more demanding, capital-intensive gamble, and chipmakers line up to test the $400 million "High-NA" version of extreme ultraviolet (EUV) lithography machines from the Netherlands ASML, making hardware do more, and function more flexibly through SaaS platforms looks like a compelling opportunity for deepening customer relationships and opening up revenue streams."
Whether Broadcom's bid comes to fruition and makes it past competition regulators or not, expect to see more chipmakers come knocking at the door of software companies as M&A activity continues.
