The impact of a full-scale probe by European Union (EU) regulators into Broadcom’s US$61 billion purchase of VMware earlier this year will hinge on the framework of the investigation, which will reveal much about what regulators are thinking, said John Annand, a director of the infrastructure team at Info-Tech Research.
That framework, according to a Reuters report, could be announced as early as next week, following an initial series of meetings known as “state of play” between EU regulators and Broadcom officials.
According to Reuters, EU officials usually convey their concerns during such meetings, and if companies fail to convince them of the merits of their takeovers, they then launch a full-scale four-month long investigation once their preliminary review of the deal ends.
Annand said there is a multitude of issues associated with the sale, chief among them being “continued uncertainty” and how that is impacting VMware product sales.
“Amazing for a software company to have supply chains disrupted. However, since the acquisition announcement, VMware has had to walk a careful line not to be seen as pulling too much revenue forward into a fiscal period while, at the same time, enterprise customers have been clamoring to sign and pay for longer-term contracts in anticipation of the expected Broadcom price bump.”
He added that this has resulted in delaying the adoption of new technologies and products announced at VMware Explore four months ago. “Despite (VMware CEO) Rangarajan Raghuram’s advice at the time for ‘customers not to have to wait,’ the uncertainty over the long-term cost model (perceived or otherwise) for VMware products is causing enterprise IT leaders to do exactly that.”
As for the EU investigation, he said, “On the face of it, a hardware company buying a software company without multiple overlapping products or direct customers should be acceptable.
“Maybe there is an argument that Broadcom could try to leverage its dominance in creating networking ASICs, combined with VMware’s NSX software, to squeeze out other networking players, but that still seems pretty thin. If you define anti-competitive behavior as a big company selling widgets who buys a little company selling widgets – Broadcom and VMware are maybe not a big concern.”
However, said Annand, there has been much more talk, especially about the European regulators focusing on the ‘protection of the consumer’ side of the anti-trust theory.
“Under that more general question, ‘is the merger between Broadcom and VMware going to be better or worse for the consumer,’ there is much more room for discussion and potential regulatory intervention.
“Ultimately we won’t know until the U.K. CMA (Competition Marketing Authority) or EU regulators release the terms of any potential review. But, in the short term, Broadcom continues to ride high on strong semiconductor silicon orders for a market starved of networking equipment, and VMware customers continue to scenario plan and consider the switching costs to alternative infrastructure platforms.”
Meanwhile, in terms of any price hike, Hok Tan, president and CEO of Broadcom, categorically denied that would occur in a blog posted on Nov. 30.
“I’ve continued to see questions in press reports about whether we intend to raise prices on VMware products,” he wrote. “The answer is simple: No.
“As workloads continue to grow rapidly across environments and multi-cloud options expand, a combined Broadcom and VMware will be focused on giving customers greater choice and flexibility over where and how they run their critical operations. We will invest in and innovate VMware’s products to create the next generation of technology that solves customers’ most complex IT challenges.”
in an article released on Monday, The Register quoted Tan as saying Broadcom is “still confident that this transaction will close and be completed in our fiscal 2023,” which started in November of this year.
