Report: Broadcom in talks to acquire virtualization software giant VMware

Computer chipmaker?Broadcom Inc.?is negotiating to buy the virtualization software giant?VMware Inc., according to a?report?by Bloomberg.

The report, citing anonymous sources familiar with the matter, said the negotiations are ongoing and that a deal is not imminent. The Wall Street Journal, however,?reported?the talks had “picked up pace in recent days.”

The terms of the proposed deal were not revealed.?VMware’s market capitalization is about $40 billion, and Broadcom’s is about $222 billion. VMware reports earnings later this week, while Broadcom will report the following week.

That said, Broadcom has reportedly been looking to expand its business beyond semiconductors for some time. Indeed, it already has a foothold in the enterprise software business courtesy of its?$19 billion acquisition?of CA Technologies Inc. in 2018 and its?$10.7 billion purchase?of Symantec Corp.’s security business a year later.

With those acquisitions, Broadcom Chief Executive Hock Tan has created a diversified business. But if there’s any truth to today’s report, Tan continues to be on the lookout for new software businesses he can get his teeth into.

He almost did so last year, with reports suggesting that Broadcom was?close to finalizing a deal?worth between $15 billion and $20 billion to acquire SAS Institute Inc. However, Broadcom’s hopes were dashed when SAS’ founder reportedly?had a change of heart?and rejected the offer.

If Broadcom does acquire VMware, it would be an unusual and unexpected deal because it’s not immediately clear what synergies there are between the two companies. They operate in different markets, with Broadcom primarily concerned with the design and manufacture of computer chips. VMware, meanwhile, sells cloud-based and on-premises software and services, and only recently became independent from Dell Technologies Inc.

“This would be a great move for Broadcom,” said Dave Vellante, founder and chief analyst of Wikibon, the market research sister company of SiliconANGLE Media. As for VMware, he added, “marrying up with a company that has custom silicon chops makes total sense to me. Broadcom has shown it knows how to do acquisitions and has strong relationships” with computer gear manufacturers.

Analyst Holger Mueller of Constellation Research Inc. told SiliconANGLE that VMware, along with CA Technologies and Symantec, could perhaps be molded into a kind of “chip to click” stack, where Broadcom designs specialized silicon chips that create more value and power higher-level applications across that stack, such as in security or software container management.?“If so, this caters well to the demands of enterprises that want more integrated solutions to run their increasingly complex operations,” Mueller added.

Charles King of Pund-IT Inc. said Broadcom’s previous two acquisitions were focused on information technology infrastructure and data center technologies, so VMware “would be a good fit” for the company, whatever it intends to do with it.

Broadcom would need to part with a lot of cash to make the acquisition happen. VMware is the pioneer of data center virtualization software that gives companies a way to consolidate applications and workloads on smaller numbers of servers, by allowing those systems to handle multiple programs at once. The company has a market capitalization of $40.3 billion.

It’s not clear if VMware would welcome an acquisition attempt. Although the company struggled with the transition to cloud computing at first, it has since forged close partnerships with infrastructure providers such as Amazon Web Services Inc. and Google Cloud. The company has had several owners throughout the course of its history though. Having been founded in 1998, it was first acquired by EMC Corp. in 2004, before passing to Dell in 2016 with Dell’s acquisition of EMC. Last year, it?formerly separated?from Dell and is now traded publicly.

Dell founder Michael Dell does, however, remain the biggest shareholder of VMware with a 41% stake in the firm, Bloomberg said. Private equity firm Silver Lake is its second-largest shareholder with a 11% stake.

“It means they have a shared controlling interest in VMware,” King pointed out. “So the main thing for Broadcom to consider is what it would take to bring Michael Dell and Silver Lake onboard. It will be a fascinating story to watch unfold.”

In October, VMware CEO?Raghu Raghuram appeared on?theCUBE, SiliconANGLE Media’s livestreaming studio, where he talked about the company’s focus on helping customers expand into the “multicloud” era in the fastest way possible: