Green in Europe
The deal still needs regulatory approval in the US and the UK. But investors are taking a more positive view after a US judge rejected the Federal Trade Commission’s attempt to block the merger between Activision Blizzard and Microsoft. Frederic Boucher, risk arbitrage analyst at Susquehanna noted that VMware-Broadcom has been under scrutiny since last year. Activision and Microsoft also went through such an in-depth review.
Broadcom agreed to acquire VMware last May. The wide-ranging deal has raised competition concerns in the European Union, prompting antitrust authorities in the union and Great Britain to begin investigating it. The commission said the transaction, as originally proposed, harmed competition in the global market for adapters that connect computers to other network and storage devices. According to her statement, the corrective measures that Broadcom will subsequently offer are sufficient.
VMware, founded in 1998, is a pioneer in the so-called virtualization software that consolidates applications and workloads on fewer server computers. As more tasks moved to the cloud, VMware struggled to maintain growth and carve out a key role in it. The company eventually formed a close partnership with Amazon, one of the largest providers of cloud storage and services.
VMware acquired storage technology giant EMC in 2004. This company then sold part of its stake in an initial public offering (IPO) to VMware 3 years later. VMware subsequently became part of Dell Technologies when the firm bought EMC in 2016. Finally, Dell spun off VMware last year.
Broadcom boasts a very diverse product portfolio across a range of end markets. It is a world leader in 25 areas of infrastructure technologies, semiconductors and software. Specifically, the company supplies semiconductor products such as chips that power data centers, WiFi, routers, smartphones, 5G, bluetooth, robotic automation, green energy, autonomous vehicles.
All of these technologies run on powerful chips or microcomputers, and Broadcom is a leader in many of these industries. Income from this area makes up about 72% of the company’s total sales. The rest is made up of revenues from infrastructure software or security software. The company’s customers include e.g. Apple, Huawei, Samsung, HP, IBM, Dell, Asus, Lenovo, Google, Cisco, Honeywell and other important companies. Only revenue from Apple itself accounted for up to 20% of Broadcom’s revenue in 2019, and even 25% in 2018. We discussed Broadcom in more detail in the article Broadcom vs. Skyworks.