The tech industry may be poised for its next big M&A deal after a report by Bloomberg, corroborated by Reuters and others, suggests Broadcom is in talks to acquire VMware.
Bloomberg sources warned that "discussions are ongoing and there is no guarantee they will result in a purchase." VMware is currently valued at around €40 billion on the public markets, although its shares rose significantly on news of the deal, giving the company a market capitalization of around €46 billion.
The acquisition of VMware would represent the latest in a series of acquisitions by 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 a separate company focused on virtualization and cloud tools.
Broadcom mainly focuses on hardware, manufacturing 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 VMware acquisition gives it the opportunity to build 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.
An October 2021 Bloomberg report said that Apple was forced to cut production targets for the iPhone 13 by 10 million units, in part due to component shortages from Broadcom.
The research showed that chip delivery times at Broadcom fell 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 business, which means margins and profits are largely unaffected by macro trends in supply chains.
Broadcom's recent $20.000 billion bid for SAS, which sells data management and business intelligence software, failed at the last hurdle, perhaps whetting appetite for a mega deal.