(Bloomberg) – Broadcom Inc. Cloud-computing company VMware Inc. Negotiating the acquisition, according to people familiar with the matter, sets up a blockbuster tech deal that will vault the chipmaker into a highly specialized area of software.
Most read from Bloomberg
Negotiations are ongoing and there is no guarantee that they will lead to a purchase, say people who did not want to be identified. VMware currently has a market value of about $ 40 billion. Assuming a simple premium, the value of the potential deal would be higher, although the terms under consideration could not be learned.
The transaction will expand the acquisition race for Broadcom CEO Hawke Tan, who has created one of the largest and most diversified companies in the chip industry. Software has been a major focus in recent years, with Broadcom purchasing the enterprise security business from CA Technologies in 2018 and Symantec Corp. in 2019.
A VMware representative declined to comment. A Broadcom representative was not available for comment.
Broadcom makes a wide range of electronics, with products ranging from the iPhone to industrial equipment. But data centers have become an important source of growth, and the emphasis on software gives companies more ways to target that market.
Broadcom had previously been in talks to acquire SAS Institute Inc., a closely held software company valued at $ 15 billion to $ 20 billion. But those talks ended last year without an agreement.
Tan also failed in his biggest takeover attempt: a bid to buy rival chipmaker Qualcomm Inc. Broadcom had to pull out of that deal in 2018 after facing resistance from the Trump administration. One concern was Broadcom’s Singapore headquarters, and the company has since relocated to the United States. It is now located about 20 miles from the Palo Alto headquarters of VMware in San Jose, California.
VMware, founded in 1998, is a pioneering Silicon Valley company that has already changed hands several times. It has developed so-called virtualization software, which combines applications and workloads on a small number of server computers using each server to run multiple programs.
But as more work has gone into the cloud, VMware has struggled to sustain growth and create a key role for itself. The company eventually acquired Amazon.com Inc. Has formed a close partnership with, one of the leading providers of cloud storage and services
VMware was acquired in 2004 by storage technology giant EMC Corporation. That company then sold some of its shares three years later as part of VMware’s initial public offering. The business went to Dell Technologies Inc. when the company acquired EMC in 2016. VMware then came out of Dell last year.
According to data compiled by Bloomberg, Michael Dell and private equity firm Silver Lake have top investors in VMware.
The software will help reduce the reliance on Broadcom chips. But its previous campaign in that market has not always been appreciated by investors. Tan argues that he is looking for businesses that are “franchisees” – which have a strong market position and can be made more profitable without huge investments.
Shares of Broadcom and VMware have fallen nearly 18% this year, due to a wide range of losses. But they didn’t hit as hard as many tech stocks. The Philadelphia Stock Exchange semiconductor index is down 27% this year.
VMware rose 0.8% to close at $ 95.71 in New York trading on Friday, with a market value of 40.3 billion. Broadcom, valued at% 543.19, down 1% on Friday, has a valuation of about $ 222 billion.
Chipmakers like Broadcom have enjoyed increasing sales in recent years, with the spread of semiconductors in more products – as well as the need for home-based technology during epidemics. But Tan warned that the boom would probably not last.
Despite an encouraging sales forecast in March, Tan said the semiconductor industry could not keep up with its current trajectory. He expects the chip business to decline at a historic growth rate of about 5%.
“If someone tells you otherwise, don’t believe it, because it never happened,” he said in a conference call at the time. Industry leaders are claiming that the semiconductor industry could “grow at current rates for an extended period of time,” he said.
(More updates on Broadcom’s history, starting with paragraph 5.)
Most read from Bloomberg Business Week
© 2022 Bloomberg LP