Broadcom Inc is in talks to acquire cloud-computing company VMware Inc, people familiar with the matter said, setting up a blockbuster tech deal that would vault the chipmaker into a highly specialized area of software.
The discussions are ongoing and there is no guarantee they would lead to a purchase, the people said.
VMware has a market valuation of about US$40 billion. Assuming a typical premium, the potential deal price would be higher, although the terms under consideration could not be learned.
Photo: Reuters
The transaction would extend a run of acquisitions for Broadcom CEO Hock Tan (陳福陽), who has built one of the largest and most diversified companies in the chip industry.
Software has been a key focus in recent years, with Broadcom buying CA Technologies in 2018 and Symantec Corp’s enterprise security business in 2019.
A representative for VMware declined to comment. A representative for Broadcom was not available for comment.
In March, Tan told analysts on a post-earnings call Broadcom had the capacity for a “good size” acquisition.
“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, “ Wells Fargo analysts wrote after Bloomberg News’s report. “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.”
Broadcom makes a wide range of electronics, with its products going into everything from the iPhone to industrial equipment. However, data centers have become a critical source of growth, and bulking up on software gives the company more ways to target that market.
VMware, founded in 1998, is a pioneering Silicon Valley company that has already changed hands a number of times. It invented so-called virtualization software, which consolidated applications and workloads on a smaller number of server computers by using each server to handle more than one program.
However, as more tasks moved to the cloud, VMware struggled to keep up growth and carve out a key role for itself. The company eventually forged a close partnership with Amazon.com Inc, one of the biggest providers of cloud storage and services.
Chipmakers like Broadcom have enjoyed booming sales in recent years, fueled by the spread of semiconductors into more products — as well as by the need for work-from-home technology during the pandemic.
However, Tan has warned that the boom times probably would not last.
Even after giving an upbeat sales forecast in March, Tan said that the semiconductor industry would not be able to stay on its current trajectory.
He expects the chip business to decelerate to historical growth rates of about 5 percent.
“If anyone tells you otherwise, don’t believe it, because it has never happened,” he said on a conference call at the time.
Industry leaders claiming that the semiconductor industry can grow at the current rate for an extended period are “dreaming,” he said.
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