Broadcom’s $61B VMware Acquisition: Users’ Benefits

In a landmark decision, the European Commission has conditionally approved Broadcom's $61 billion acquisition of VMware, a leading provider of server virtualization software. The approval came after concerns were raised regarding potential restrictions on competition in the market for certain hardware components that interoperate with VMware's software. To address these concerns, Broadcom pledged a technology access remedy to preserve interoperability, a core principle that VMware users highly value.

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The European Commission's primary concern was that Broadcom, with its strong position in the hardware component market, might limit the compatibility of VMware's software with third-party hardware, creating a potential monopoly. VMware has historically been neutral towards hardware providers, ensuring an open ecosystem that allows for compatibility with various hardware options. However, the fear of potential changes under Broadcom's ownership led to skepticism among industry observers.

Broadcom's commitment to preserving interoperability appears to be a proactive measure to reassure the Commission and potential users that they will not disrupt VMware's hardware neutrality. By agreeing to separate its Host-Bus Adapter (HBA) team from its third-party certification and technical support staff, Broadcom aims to maintain an open and competitive market for hardware components that work with VMware's software.

While US and UK regulators have yet to weigh in on the acquisition, Broadcom remains focused on finalizing the purchase before November 1, 2023. The Competition and Markets Authority (CMA) in the UK also expressed concerns, but Broadcom's willingness to address the European Commission's concerns indicates their commitment to resolving potential regulatory issues.

Broadcom's proposed investment of $2 billion in VMware's R&D to create hybrid multicloud solutions and a promise of $8.5 billion in pro forma EBITDA within three years of acquiring VMware signal their intention to enhance the company's offerings. VMware users may find comfort in the potential for innovative developments resulting from this partnership.

Despite Broadcom's optimistic promises, the acquisition has led to some apprehension among VMware customers. Market research firm Gartner's May Market Guide for Server Virtualization suggests that the acquisition will be a "disruption" that could prompt 50% of enterprises to reevaluate their server virtualization needs and explore alternative technologies. While server virtualization is gradually declining due to cloud migration and container adoption, Gartner predicts that approximately 70% of datacenter x86 workloads will continue to use hypervisor-based virtualization through 2027.

As the acquisition unfolds, VMware users will closely monitor how Broadcom's ownership impacts the company's software and hardware ecosystem. Broadcom's commitment to preserving interoperability and investments in R&D are seen as positive signals, but users remain watchful of any potential changes that could affect their server virtualization needs.