Today, Broadcom Inc. is interested in acquiring VMware. The target was worth around $40 billion at the end of last week, and the buyer nearly $220 billion.
At first glance, it might not make much sense for one of the world’s most prominent chip designers to want to buy a specialty software maker. But Broadcom CEO Hock Tan could take inspiration from Michael Dell to strike a big deal that would elevate the company’s position in an industry it wants to dominate in the future, rather than the one it occupies. today.
Tan is no stranger to big business. Seven years ago, the company he then ran, Singapore-based chipmaker Avago Technologies Inc., announced a $37 billion equity and cash offering for what was then called Broadcom Corp. It remains one of the greatest technological acquisitions in history. Both companies were leaders in various types of communications chips used in cell phone systems, Wi-Fi networks, and the automotive and defense industries.
That deal went through and Avago took on its target’s name (and kept the AVGO symbol). But Tan wasn’t done, and in 2019 bought Symantec Corp’s enterprise security business. for $11 billion, as part of its decision to reorient the company from just selling chips to a wide range of systems products, including storage and networking.
Part of this new direction has been a move into the software domain which includes network and information security, authentication and access control, and developer tools. This division accounted for 26% of sales last year, but above all benefits from operating margins that are 16 percentage points higher than those of Broadcom’s chip division.
Tan has previously said that the current chip boom won’t last, and he’s made it clear that he doesn’t want to be stuck with the lower growth rates that may come when today’s semiconductor party becomes tomorrow’s hangover. If he’s right, then expanding the business into one with better margins and better long-term growth prospects might be a smart move. If he’s wrong, he’ll likely be kicked out, leaving behind a huge company with a myriad of onboarding issues.
Broadcom, the former chip designer, would have had no reason to buy a company that makes virtualization software. Still, that’s the point. Tan doesn’t want to stay a chipmaker any more than Michael Dell wanted to stay a PC maker. Bold plans require big moves, and it may be the chord that makes them happen.
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This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.
Tim Culpan is a Bloomberg Opinion columnist covering technology in Asia. Previously, he was a technology reporter for Bloomberg News.
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