It seems like forever ago, but the Q2 2022 Broadcom – VMware deal finally closed today after a lengthy approval process. This is one that has had mixed reactions from the VMware customer community, given Broadcom’s strategy of focusing on larger customers and focusing on raising prices and bundling for its newly acquired businesses.
Broadcom Closes VMware Acquisition
The deal closes today, giving Broadcom a massive foothold in the enterprise market. Between network switches, NICs and the LSI-Avago-derived Tri-Mode RAID controllers, PCIe switches used in AI servers, and more, Broadcom already has a massive hardware footprint in the enterprise data center.
Perhaps the most amazing part of the deal is that it will give Broadcom an enormous head start on enterprise networking in the future. This year we took both AMD Pensando DSC2-100G Elba DPUs and NVIDIA BlueField-2 DPUs for a spin using VMware ESXi / ESXio. VMware has been building its own integrations to make VMware hardware agnostic to the DPU vendor building a deeper NSX integration. As more enterprises use DPUs, and the use cases transition from just network offloads to more storage offloads, Broadcom has a massive opportunity to integrate its other offerings.
DPUs are just one example. The company has been acquiring a software suite that it can also bundle to VMware’s customers giving it an almost scary portfolio.
This is one of the deals that should not have gone through this long of an anti-trust review save for current geopolitical tensions. The deal was finally done once China finally gave the go-ahead, with conditions. While many may be nervous about higher prices, the reason the deal went through (and should have) is that there are plenty of viable alternatives in the market. That is not an easy transition to make, but it is why this deal should have been approved sooner, given the structure of anti-trust rules. Still, it is a big day in the market, and we wanted to memorialize it, at least.
Traditionally, a hardware company buying a software company is a play to build margins and bundle, as we saw when Dell bought VMware. Given NVIDIA’s recent AI GPU results, it seems like the bigger driver of revenue, profitability, and market cap is actually having a widely adopted AI accelerator. The VMware deal took so long to close that the market has drastically switched focus and traditional virtualization has taken a back seat to AI. A lot has happened in seven quarters.