Originally announced back in May, cloud computing company VMware and chipmaker Broadcom’s $61B deal is being pushed back an additional 90 days due to regulatory considerations.
The original deal centered around the strategy of vendor consolidation, which is a supply chain strategy utilized by high-growth companies in selecting from whom they purchase their products. Take, for example, the relationship between Dell and Intel. Dell frequently utilizes Intel’s processors in their laptops. Intel benefits from their chips being used in Dell’s laptops and Dell benefits from their laptops having Intel’s chips — as there are sets of customers that desire one or the other but would not necessarily purchase both separately.
This strategy is fairly common in IT and enterprise systems — especially given the emphasis on quick-scaling and affordable prices businesses demand from their software providers.
As for VMware and Broadcom, the former was originally under the Dell umbrella of products — specializing in visualization, storage, and public cloud infrastructure. Broadcom is a major chip manufacturer, which provides processors that help to link connecting servers to storage devices.
The deal made perfect sense for Broadcom; acquire a service provider that has gained the favor of many data service companies such as NetApp and HP and leverage that into more distribution channels for their chips as well as leverage their own distribution channels into more SaaS revenue for VMware.
However, the plan may be too perfect as regulatory scrutiny has come in from far and wide regarding the deal. Big tech mergers always attract regulatory attention, but VMware’s situation seems different. While it has prevailed thus far without any holdups in the US regulatory environment, the EU has been in the midst of antitrust probes into Broadcom’s acquisition for months now.
The main concerns center around Broadcom’s potential to degrade VMware’s software for competing chip providers as well as limit the ability of its rivals to utilize VMware’s software.
The probe is expected to come to a conclusion around May 11, at which point a decision will be made as to whether the acquisition can proceed as planned. No matter what direction the result goes in, the cloud computing landscape certainly is holding its breath in anticipation of what is to come.
