As we wrote previously, we believe this acquisition is a strategic blunder on the part of Broadcom (AVGO). Broadcom’s acquisition of VMware (VMW) is essentially a “bet the company” type of acquisition given the amount of purchase consideration ($61 billion) and also given the fact that the acquisition doubles down on AVGO’s bet on infrastructure software in conjunction with the 2019 acquisition of Symantec’s Enterprise business, the 2018 acquisition of CA and the 2017 acquisition of Brocade. Our view is that these acquisitions are too far afield from Broadcom’s core business.
Our preference would be that Broadcom focus on its core business despite the fact that Alphabet (GOOG), Apple (AAPL), Facebook (FB) and Microsoft (MSFT), have waded into chip design for various on-device and cloud applications. Regarding M&A, our view is that Broadcom ought to focus on a space that is closer to its core, even if somewhat “niche”. Think of Enterprise Software used to design chips, buildings, 3D models and a wide variety of other products. We of course are speaking of Software companies such as Ansys (ANSS), Autodesk (ADSK), and PTC (PTC).
AVGO’s purchase consideration is slightly north of VMW’s recent high – which enables VMW to save face and push the deal through with shareholders.