The technology industry could be set for its next huge M&A deal after a Bloomberg (opens in new tab) report, corroborated by Reuters and others, suggests that Broadcom is in talks to acquire VMware.
The sources Bloomberg spoke to caution that "discussions are ongoing and there’s no guarantee they will lead to a purchase". VMware is currently valued at around $40 billion on public markets, although its stock has risen considerably on news of this deal, giving the company a market cap of around $46 billion.
Acquiring VMware would represent the latest in a series of acquisitions for Broadcom, which is valued at around $222 billion.
For its part, VMware was spun off by Dell in a $64 billion deal in November 2021, creating an independent company focused on virtualisation and cloud tools.
Broadcom predominantly focuses on hardware, making components for the iPhone, industrial equipment, and much more. It is, in this sense, an old school conglomerate.
But the company has been increasingly focused on data centres and acquiring VMware offers the company a chance at making both the hardware and software for the cloud's infrastructure.
Both VMware and Broadcom had no comment for Bloomberg.
As you can imagine for a chip company, the global chip supply shortage has been difficult for Broadcom.
A Bloomberg report (opens in new tab) from October 2021 said Apple had been forced to cut iPhone 13 production targets by 10 million units in part due to a shortage of Broadcom components.
Research showed that chip lead times at Broadcom grew (opens in new tab) from 12.2 weeks in February 2020 to 22.2 weeks in March 2021, reflecting broader struggles in the industry.
From this perspective, buying VMware makes a lot of sense: it is a software business, meaning that margins and profits remain largely unaffected by macro trends in supply chains.
Broadcom's recent $20 billion bid for SAS, which sells business intel and data management software, fell through (opens in new tab) at the final hurdle, perhaps creating an appetite for a mega deal.