Why on the planet would chipmaker Broadcom be desirous about VMware?

Over the weekend, rumors started flying that chipmaker Broadcom was desirous about buying VMware, the corporate greatest recognized for commercializing the digital machine idea that gave delivery to cloud computing. Bloomberg first reported the potential deal on Sunday.

VMware is not going to come low cost. It had a market capitalization within the neighborhood of $40 billion earlier than the potential deal was reported, a determine that rose some 20% right this moment to round $48 billion as buyers positioned bets that Broadcom would pay a hefty premium for the smaller firm. Conversely, Broadcom is down over 2%.

VMware has expanded into cloud-native technologies through the years and has a diversified enterprise, a lot of which is said to the cloud. Broadcom, however, isn’t concerned in a lot of that, making it seem to be a poor match. In all probability as a result of it’s.

Broadcom builds semiconductors. With a market cap of over $220 billion, the corporate has tried to diversify in recent times by buying software program corporations to make the most of software program license income as a hedge in opposition to the vagaries of the {hardware} market, identical to different hardware-focused corporations — hello, Cisco.

It spent over $18 billion in 2018 to purchase legacy enterprise software program firm CA Applied sciences and one other $11 billion a 12 months later for Symantec’s legacy security business. These are very totally different animals from VMware, which continues to be a viable firm and never some dinosaur with a portfolio of licensing offers on the books that an organization like Broadcom can make the most of.

So why is the deal within the offing, given the obvious lack of match from a high-level perspective?

Sq. pegs, spherical holes

Patrick Moorhead, founder and principal analyst at Moor Insights & Methods, stated it’s not simply our lack of creativeness: There actually isn’t a lot connective tissue between the 2 corporations. However one factor that many tech corporations do have right this moment is monetary liquidity. From that perspective, the potential VMware deal is all about placing Broadcom’s cash to work in one thing apart from chips.

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