- Broadcom’s move to acquire VMware raises many questions, including whether Broadcom can integrate a much larger company with a focus on cloud software and application management.
- Key questions about the acquisition include whether Broadcom might change or dispose of existing VMware solutions or alter the relationship between VMware and its customers or partners.
The announcement of Broadcom’s $61 billion (USD) bid to acquire VMware raises a raft of questions, the answers to which should not be expected anytime soon. Assuming the acquisition gains regulatory approval and is not met with a counterbid before the July deadline, it will be one of the largest technology acquisitions of all time. This will be a major acquisition for Broadcom, which will need to integrate VMware’s 35,000 employees with its own 20,000-strong workforce. The acquisition will also significantly enlarge Broadcom’s software business, especially in the markets for multi-cloud, hybrid cloud, and application management solutions.
Broadcom has been growing its position in the enterprise software space for some several years with key acquisitions, including the $18.9 billion purchase of CA Technologies and the $10.7 billion purchase of Symantec Corp’s enterprise security unit, both in 2018. However, the VMware acquisition is different, partly because of VMware’s huge share of the markets for virtualization, software-defined data center technologies, and private and hybrid cloud enablement solutions. These are markets in which Broadcom has historically lacked experience.
Despite this, Broadcom has said it will invest in core VMware software solutions, including vSphere compute, vSAN storage, NSX networking, and vRealize Cloud management. Broadcom has a strong focus on R&D, with over 60% of its worldwide employees reportedly involved in R&D activities. Investing in VMware solutions in ways that enhance their innovativeness and competitiveness could therefore help to strengthen VMware’s existing success and market share.
Key questions about the acquisition relate to the nature of the process by which VMware will be integrated with Broadcom’s software division and the extent to which Broadcom might change or even dispose of existing VMware solutions or alter the relationship dynamics between VMware and its customers or partners. Broadcom plans to integrate VMware into its existing software division, which will operate under the VMware brand. Thereafter, VMware will account for around half of Broadcom’s software business. However, in addition to taking time, integration processes always come with a host of challenges, which include the reaction of employees to the changes occurring round about them. Broadcom’s plan to boost VMware’s profitability appears to point to the likelihood of redundancies. Even the prospect of redundancies is enough cause employees to question their futures within an organization. Other VMware employees may choose to leave in response to changing work conditions and processes.
Furthermore, early suggestions from Tom Krause, the President of Broadcom’s software business, that Broadcom will rapidly move VMware customers from perpetual software licenses to subscriptions or SaaS-based plans have prompted concern among some VMware channel partners. Some VMware customers are also highly likely to be concerned about this proposition, especially those with licence arrangements that still have several years to run.
Other VMware partners have pointed to Broadcom’s traditional focus on direct sales over channel partner sales. This raises questions about whether Broadcom will be able to effectively manage the extensive network of partner relationships, on which the success of VMware sales depends.
On balance, Broadcom’s acquisition of VMware currently raises a multitude of questions. Answers to some of these questions may become clearer in the days and weeks to come. Others will continue to be a source of uncertainty until long after the acquisition is concluded.