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Broadcom cites cloud market size in bid to avoid EU antitrust probe into VMware deal

The size the of cloud market, and dominance of hyperscalers, means mega-deal should go ahead, Broadcom says.

By Ryan Morrison

Chipmaker Broadcom will cite the size of the cloud market and the dominance of the Big Tech hyperscalers – Amazon AWS, Microsoft Azure and Google Cloud – as a reason its proposed $61bn take-over of VMware will not require a detailed European Union antitrust investigation, reports today suggest.

Broadcom announced plans to buy VMWare for $61bn in May in a bid to boost its service business (Photo: askarim/Shutterstock)
Broadcom announced plans to buy VMWare for $61bn in May in a bid to boost its service business. (Photo by askarim/Shutterstock)

The deal that would see Broadcom take over virtualisation specialist VMware was announced in May and within a month of it being confirmed by the two companies, the EU announced an antitrust investigation. Analysts who spoke to Tech Monitor at the time predicted that an in-depth antitrust review could delay the deal by a year or more and could lead to the cancellation of the deal if it drags on too long or too many conditions are placed on approval.

Reports suggest not all VMware customers are happy with the deal, with some contacting the EU to argue that if the takeover happens they may be forced to buy services from Broadcom, where currently they have a choice of service providers when using VMWare technology.

Today Reuters reports that Broadcom is confident it can avoid a more in-depth EU probe by arguing that the scale of the new company would make the cloud market more competitive, offering an alternative to the hyperscalers, who themselves have been accused of stifling competition. What’s more, it says, the cloud market is big enough to handle another major player.

“For the Commission to go to phase two, there has to be a real competition problem – horizontal, vertical, foreclosure risk – and I think we can show those risks don’t really exist in this case,” an unnamed insider told Reuters.

If the deal does go to phase two, the process will take a minimum of four months, pushing the closing of the deal into 2023 and possibly the next financial year.

Broadcom hasn’t asked the EU for approval yet, saying in a statement it is continuing to make progress “with our various regulatory filings around the world, with that work moving ahead as expected”.

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Broadcom-VMware and the move to a service model

The potential acquisition of VMware is expected to form part of a plan to widen the combined company’s portfolio of as-a-service products, including cloud solutions.

“Building upon our proven track record of successful mergers and acquisitions, this transaction combines our leading semiconductor and infrastructure software businesses with an iconic pioneer and innovator in enterprise software as we reimagine what we can deliver to customers as a leading infrastructure technology company,” Hock Tan, president and CEO of Broadcom, said when the deal was announced.

While the EU investigation will look at the anti-competitive elements of the merger, analysts who spoke to Tech Monitor said there are no obvious synergies between the companies.

“Broadcom’s acquisition strategy seems to be around just trying to buy relevance in the enterprise IT market beyond its base chips business,” said Steven Schuchart, principal analyst at GlobalData. “The only reason I can think Broadcom would want VMware is to diversify its product portfolio into software, which generally has a much less lumpy and more predictable income flow due to software subscriptions.”

Tom Krause, Broadcom software president, said earlier this year that products from two other Broadcom acquisitions, CA Technologies and Symantec, will be moved to operate under the VMware banner once the deal is complete and customers would be free to choose whether to use them or not. He said the priority was to keep existing VMWare customers happy.

“We recognise the central role that VMware’s deep customer relationships play in its success,” Krause said. “Broadcom wants to preserve and grow these relationships and we’ll be investing in both the direct sales force across all key verticals as well as the partners that support the broader customer base.”

Read more: vSphere+ accelerates VMware’s SaaS transition

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