The May 26 blockbuster US$69.1 billion purchase of VMware by Broadcom has unleashed a flurry of negative reaction, not only among enterprise customers, but also within the analyst community.
John Annand, a director of the infrastructure team at Info-Tech Research, who in a past life once sold, installed and configured VMware, said upon hearing the news he was immediately “concerned.”
The company that former chief executive officer Pat Gelsinger propelled into a cloud computing and virtualization software giant, is, he said, a “partner darling with a really big ecosystem, which you could see every time you go to their conferences or talk to him. They would work with other technology companies to build additional solutions.
“I mean Veeam is a huge company that only exists because of its ability to partner with VMware and do it really, really successfully.”
The issue among enterprise customers, Annand said, revolves around what the company will look like should the buyout, which a Financial Times article revealed came together in a mere two weeks, be approved by regulators.
“For a complex transaction that had eight banks and four law firms listed as advisers, the deal came down to just two individuals quickly agreeing one of the world’s largest technology deals on record,” the article notes.
“Broadcom’s Hock Tan and Michael Dell of the eponymous PC maker, architects of more dealmaking coups than many Wall Street veterans, were the key architects of the chipmaker’s US$69.1 billion takeover of VMware.”
It is also the fourth and largest acquisition made by the semiconductor manufacturer in the last six years. In 2016, it bought Brocade Communications Systems for US$5.9 billion. The company then bought CA Technologies in 2018 for US$19 billion and paid US$10.7 billion for Symantec one year later.
“Broadcom makes really good silicon, they make excellent switching,” said Annand. “I don’t know that they’ve really made good software ever.
“I can speculate reasons why Broadcom could want VMware. If they want to move into Software Defined Networking, Network Functions Virtualization (NFV), cloud orchestration and build a networking fabric, VMware has some interesting components. They have NSX and they have Velo cloud.
“They’ve got the potential there to make Broadcom more than just a commodity silicon manufacturer, and maybe that’s a play they want to go into. I don’t really know.”
VMware customers, he added, are “worried about support, they are worried about cost increases, and they are worried about a lack of innovation going forward.”
Forrester analyst Tracy Woo, in a blog posted the day the deal was announced, concluded that despite stock price increases, this is not welcome news for VMware customers.
“For acquired companies, a Broadcom acquisition sparks fears of price hikes, diminished support and stunted innovation,” she wrote. “At a time when VMware customers need to re-establish confidence in the company’s strategy and innovation plans after beloved ex-CEO Pat Gelsinger’s departure, this would be a notable departure from that course.
“After all, VMware customers should be concerned especially if Broadcom follows the same playbook it used for its CA and Symantec acquisitions. Following these purchases, CA and Symantec customers saw massive price hikes, worsening support, and stalled development.”
Woo, who specializes in cloud computing strategies, suggested that a combined Broadcom and VMware “could create a behemoth that holistically tackles any workload modernization challenge, thereby delivering the greater goal for many enterprise customers: to embrace cloud-native without over-dependency on any cloud provider.
“Will it? Given its track record, it does not seem likely. Ultimately, if you’re a VMware shop, you’ve got to make the call in the near future.”
Annand, meanwhile, said the acquisition is an “easy way to return value to shareholders and do the right business thing, but it’s not a cool, interesting, or good technology thing. This deal makes sense from a business standpoint, but from a technology standpoint, I am kind of appalled.”
The deal itself involves a cash-and-stock-transaction that values VMware at an estimated US$61.1 billion. In addition, Broadcom will assume an additional US$8 billion of net debt.
Following the closing of the transaction, plans call for the current Broadcom Software Group to rebrand and operate as VMware as part of what has been described as an “expanded portfolio.”
“VMware has long been recognized for its enterprise software leadership, and through this transaction we will provide customers worldwide with the next generation of infrastructure software,” said Broadcom Software Group president Tom Krause. “VMware’s platform and Broadcom’s infrastructure software solutions address different, but important enterprise needs, and the combined company will be able to serve them more effectively and securely.”
