While regulators worry that Broadcom's VMware acquisition will be anti-competitive, defenders of the deal say it will bring much-needed competition to a hyperscale cloud market now dominated by Amazon Web Service (AWS), Microsoft Azure and Google Cloud.
Indeed, at least one VMware business partner says the deal will create a new hyperscale cloud to challenge the big three incumbents.
“Broadcom/VMware is the fourth vendor in the cloud race,” said Muddu Sudhakar, co-founder and CTO of Aisera, which provides AI-driven self-service automation for common business tasks.
Sudhakar has reason to follow VMware closely: VMware uses Aisera technology in its customer service, and Sudhakar is a former VMware executive, heading up its analytics team from 2012–2014.
With the merger, Broadcom-VMware would be poised to dominate the new era of the so-called “supercloud.” Supercloud providers provide software and services that run on top of public and private clouds. The supercloud era has already begun, and VMware is already in it, providing middleware to build containerized and virtual machine applications that span public clouds and on-premises private clouds.
Other examples of supercloud companies are Snowflake, which provides data storage and analytics, and Dish Network, providing cloud-based 5G services. (Though Dish is facing financial difficulties.)
With the Broadcom acquisition, VMware would have the resources to dominate the supercloud market. “VMware’s assets are used by pretty much all the enterprises today,” Sudhakar said. VMware would be even stronger, combining with Broadcom’s financial resources, software, and server and networking hardware.
Regulators build barriers
But before Broadcom-VMware reaches its full potential, it needs to be cleared by regulators in the U.S., Europe, and the U.K., who are closely scrutinizing the deal. Regulators are increasingly suspicious of technology mega-mergers. Broadcom CEO Hock Tan met with European antitrust enforcers early this month to try to convince them to approve the deal.
Broadcom pledged to invest an incremental $2 billion toward R&D and partnerships for VMware post-acquisition and offered antitrust commitments to the European Commission to ease concerns.
In the face of scrutiny, VMware extended its deadline to close the takeover to Aug. 26, with an option to extend again to Nov. 26. Broadcom says it will close the deal by the end of its fiscal year, in October.
Perhaps the most problematic regulatory concern for Broadcom and VMware is from the British Competition and Markets Authority (CMA), which launched an in-depth phase 2 investigation of the deal in March. An antitrust attorney said that particular investigation will likely kill the deal, noting that about 60% of deals subject to similar inquiries didn’t close.
But IDC analyst Jevin Jensen said the deal will go through.
Saying no to Dr. No
“I am convinced that the U.K., the home of James Bond, does not want to be known as Dr. No, and once they have an open mind and all the facts, they will go ahead with it,” he said. "There is not a lot of competitive concern out there.”
The CMA is concerned that the merger would reduce competition for Ethernet Network Interface Cards (NICs), fiber-channel host bus adapters (HBAs), storage adapters and fiber-channel switches, as well as make it harder for Broadcom’s server hardware competitors to achieve interoperability with VMware virtualization software, which requires divulging competitive secrets to VMware and Broadcom.
However, Broadcom will accommodate competitive concerns on networking hardware, which is not a big enough part of Broadcom’s business to be worth jeopardizing the VMware deal, Jensen said. And VMware—formerly majority-owned by Dell Technologies—has a long history of working with server vendors that compete with its parent company.
“It would make no business sense for Broadcom to lock out partners, and historically they do not do that,” Jensen said.
Far from being anti-competitive, the deal promotes competition, wrote analyst Patrick Moorhead, founder, CEO and chairman of Moor Insights & Strategy, in a column at Forbes.
It would be “business suicide for Broadcom to do any of the things that European Commission (EC) and UK regulators are investigating…. any degradation in interoperability and so on would be catastrophic for Broadcom’s revenues, quickly drive customers into the arms of VMware’s competitors and throttle the company’s growth potential. It’s just not that hard to move VM vendors,” Moorhead wrote.
Regulators are focused on low-probability hypothetical concerns and are losing sight of reality, he added.
“The combined Broadcom-VMware will make the public cloud market more competitive,” Moorhead said.
“A bigger, stronger VMware business within Broadcom will have a vested interest in helping customers navigate a more hybrid, more multi-cloud world,” Moorhead argued. Enterprises will find it “easier, not harder…. to shift their resources to whatever mix of platforms makes sense for their needs, whether it be on-premises or in public, private or hybrid cloud deployments. That, in turn, erodes the current over-centralization of the cloud market in the hands of the Big Three entrenched cloud providers—which just happen to be three of the biggest, richest tech companies in the world.”
The Broadcom-VMware merger will “counterweight” the existing giants, Moorhead concluded.
“I have every reason to think that the Broadcom-VMware deal will increase innovation, facilitate more customer choice and limit cost increases,” Morehead said.
The merger provides strong opportunities for synergies. Broadcom’s strategy is built from past acquisitions, including Symantec for security and CA for mainframe, database and workload placement. VMware is focused on virtualization and the cloud. They have minimal overlap. “All of these are extremely complementary,” Jensen said.
Broadcom-VMware will have opportunities to extend its hybrid cloud strength to bring cloud architecture to endpoints, particularly mobile, Jensen said.
While the combined company will be a formidable competitor, Jensen is dismissive of assertions that they’ll be as big as AWS, Azure or Google. He notes that AWS generated $80 billion in cloud revenue in 2022.
“There’s no way Broadcom will spend the money for VMware to catch up with someone with an $80 billion head start on them,” he said. “We’re giving a resounding ‘no’ on that one.”