Broadcom announced on 30 October 2023 that the acquisition of VMware would close before the expiration of the merger listed as 26 November 2023. Credit: Tada Images / Shutterstock.

Broadcom’s acquisition of VMware has similar characteristic drivers to acquisitions over the last 2-3 years in the cybersecurity sector. Recent cybersecurity deals include Virginia-based cybersecurity giant Mandiant, which was acquired by Google in March 2022, to deliver end-to-end security operations suites across customer cloud environments; IT management software provider Kaseya acquiring cloud software vendor Datto for $6.2bn; and OpenText’s acquisition of Micro Focus, a leading provider of mission-critical software technology and services for $6bn.

The underlying strategy behind most of these acquisitions is in the acquirer taking a more leading position and advancing their portfolio in cloud, providing end-to-end security for the enterprise, and in some instances increasing wallet share on the software business vs hardware. The latter certainly seems to be the case with the Broadcom acquisition of VMware, and sets the record in terms of deal value standing at $69bn.

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China approves the Broadcom and VMware deal, but customer uncertainty continues.

VMware is an established player with a solid foundation and strategy, and this cuts across its cybersecurity portfolio. The delays in the transaction have created uncertainty for both Broadcom and VMware cybersecurity customers, particularly on larger cybersecurity deals, in an already aggressively competitive market.

GlobalData analysis highlights that VMware’s total revenues for the second quarter of fiscal year 2024 was $3.41bn, an increase of 2% compared to fiscal 2023, demonstrating growth. However, the delay in the transaction has impacted VMware’s share value. This is the opposite effect to Broadcom shares which a week ago were at a positive $957.52, potentially influenced by Broadcom’s direction on artificial intelligence (AI) in relation to its semiconductor chip business.

Impact on VMware brand equity within an aggressive cybersecurity competitor landscape

According to GlobalData, the total cybersecurity market is worth over $282bn by 2027, with a CAGR of 12.56%. Key sub-product areas include network, endpoint, and cloud security, all of which are aligned with both Broadcom and VMware’s cybersecurity portfolio strengths. In a cybersecurity market that will be fueled with end-to-end security monitoring for distributed customer cloud environments in zero trust settings, coupled with observability data monitoring, the competition is aggressive with the likes of Cisco, Palo Alto Networks and Zscaler. If Broadcom’s not careful, the potential impact on VMware brand equity could be high in the short term.  

Will the Broadcom and VMware deal be one of many that showcases closer ties between the US and China?

Broadcom announced on 30 October 2023 that the acquisition of VMware would close before the expiration of the merger listed as 26 November 2023. The company at the time also stated that the parties had received legal merger clearance across key countries and foreign investment control clearance in all necessary jurisdictions. Therefore, China’s approval on the eleventh hour enabling Broadcom to close the deal on November 22 2023, has no doubt been a relief to shareholders across both organizations.

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US’s tough stance with China on chip controls could have been a catalyst in the event the deal did not go through. But equally, this month’s presidential meetings between Xi Jinping and Joe Biden during the APEC summit, could have played a role in lowering the barriers between the two state powers to do business. However, the approval comes with restrictions, ensuring Broadcom does not abuse its market position and creates a fair playing field with competitors in terms of technological interoperability.

Rajesh Muru, Enterprise Product Cybersecurity Lead Analyst at GlobalData concludes: “It must be a relief for both companies that this deal has gone through. But the by-product of this stand-off has been the possible decremental impact on VMware’s overall business and share value, including its cybersecurity business, as customers are swayed towards competitors with more robust and stable future cybersecurity product lines.”