Wall Street’s lights are bright on BroadWare

If Wall Street had to invent a company, it would probably look a lot like Broadcom.

Once known primarily for its semiconductors, Broadcom has become something of a technology hedge fund, adding various potentially promising companies to its portfolio of businesses, as part of CEO Hock Tan’s quest to turn it into a software play. Through multiple billion-dollar acquisitions what has emerged is a conglomerate that is beloved by Wall Street analysts but difficult to look at as a coherent operation with a clear, core business.

While Broadcom’s $61 billion acquisition of VMware will further broaden the chipmaker’s growth prospects beyond semiconductors by giving it more enterprise software clout and recurring revenue, the immediate benefits are less apparent for VMware.

• Broadcom officially announced the deal Thursday morning, several days after its intent to acquire VMware leaked out.
• The company will pay $61 billion in a cash and stock deal for VMware and fold the Broadcom Software Group, which contains previous acquisitions CA Technologies and Symantec, into a new organization called VMware.
• "We think together, Broadcom’s software assets for the distributed enterprise can seamlessly complement and augment VMware's multicloud offerings in the areas of operation management, value stream and DevOps management, and security to address the entire application life cycle," said Tom Krause, president of the Broadcom Software Group, on a conference call following the announcement.
• "We are creating one of the world's largest infrastructure technology companies," Tan said on a conference call Thursday discussing the deal.

VMware’s acquisition does not come as a total surprise.

• “We have for several years expressed much caution on VMware given our concerns about VMware’s on-premise exposure, its overall growth profile and its ability to execute on a consistent basis,” Mizuho Group analyst Gregg Moskowitz said in a research note on Monday, after news of a pending deal leaked out.
• Under the terms of the deal, VMware will have until July 5 to solicit other offers from other possible acquirers.
• Given the $61 billion price, however, there are only a handful of enterprise tech companies that have the resources to pursue such a deal.
• The Big 3 (AWS, Microsoft and Google) cloud providers, Cisco Systems and Intel could be logical contenders to buy VMware, but some industry analysts don’t expect other suitors to step forward and thwart Broadcom’s deal.

Based on its track record following its two other major software acquisitions – CA Technologies in 2018 and Symantec's enterprise security business the following year – Broadcom could target an estimated $5 billion-plus in cost savings to improve VMware’s margins and profitability, according to Bernstein analysts.

• With VMware under its belt, it leaves Broadcom with roughly $90 billion in debt, according to an analysis by Evercore chip analyst C.J. Muse, but it would roughly triple the size of Broadcom’s software business.
• Broadcom plans to finance the acquisition with $32 billion in new debt financing from a consortium of banks.
• “This is a great franchise,” Tan said during a call with financial analysts on Thursday. “In terms of monetization, it's all about execution. We believe we will execute much, much different — hopefully better — than what we have been seeing so far.”
• VMware’s transition from selling licensed software to data-center operators has been “choppy,” according to Moskowitz, and VMware’s subscription and SaaS business underperformed Wall Street’s expectations in four of the last five quarters.

Still, VMware played a crucial role in the development of enterprise tech over the last two decades, only to wind up a cash-generating machine for hardware companies time and time again, as this thread on Twitter from AWS’ Jeramiah Dooley so clearly explained.

• Broadcom is a “logical home for VMware at the right price,” according to Macquarie software analyst Garrett Hinds, but he believes VMware had ample paths to independently deliver shareholder value as it continues to transition to SaaS.
• And it’s clear that several ex-VMware executives and employees were a little disappointed to see the company wind up with a buyer like Broadcom.
• “Anyone have $62B that I can borrow?” wondered Steve Herrod, VMware’s longtime former CTO.

A MESSAGE FROM LOGITECH

In the New Logic of Work, solutions meet people where they are now, not where they were last year or even last week. And it means providing tools and experiences tailored to different people and roles in an organization. At Logitech, our products create opportunities for people and organizations to thrive.

Learn more

Chipmakers at the gates of dawn

A once-in-a-decade shift is underway involving one of the most elemental building blocks of computer chips, and it has the potential to reshuffle the pecking order of chip giants for years to come.

Intel, Samsung and TSMC are racing to achieve a generational leap in transistor technology. This leap must occur to realize anything close to the computing requirements demanded by the ideas behind the metaverse, to produce AI that isn’t a joke, to make truly self-driving cars or even make apps load faster.

This next-generation design is called “gate-all-around.” With new materials, and redesigned manufacturing tools that cost tens of millions each, the new gates accomplish one thing: They more tightly control the flow of electricity received by each transistor. Modern chips can have upwards of 30 billion transistors on a single device, and in some cases tens of billions more. In 2025, Gartner expects chip manufacturers to generate roughly $5 billion in revenue from the new technology, up from nothing last year.

Chip companies must deliver substantially more computing horsepower every year to get to a version of the future that’s been promised by the tech titans. Doing so requires some of the most complex, expensive manufacturing equipment on the planet, and the development of even more creative ways to improve fundamental aspects of chip construction. That means making already atomic-sized features even smaller. This process, loosely described as Moore’s law, has kept the chip industry humming for a half-century, but it’s getting harder.

“The rate at which we're shrinking is for sure slowing down, big time,” Applied Materials Vice President Kevin Moraes said.

Read the full story here.

Enterprise moves

Over the past week, executives from Zoom, GitHub, LinkedIn and Nutanix left for new roles. Here’s what else happened with the people of enterprise tech.

Laura Padilla is now VP of Partners at Airtable. Padilla previously led partner and platform sales at Zoom and worked at Nutanix and Box prior to that.

Maneesh Sharma is now COO at LambdaTest. Sharma was previously the general manager for GitHub India and led partner sales at Adobe prior to that.

Ron Sanderson was promoted to CISO of Redpoint Global. Sanderson was previously director of Information Security.

Doug Myers joined ServiceTitan as SVP of Operations. Myers was formerly the VP of Operations at LinkedIn.

Olive Huang is general counsel at ServiceTitan. Huang was previously general counsel for Nutanix.

— Aisha Counts (email | twitter)

Around the enterprise

Lacework confirmed to Protocol that it laid off 20% of its workforce Wednesday, a big setback for the well funded cloud security startup.

Splunk reported a bit of a rebound, topping Wall Street estimates for revenue and reducing its net loss while raising guidance for the upcoming quarter.

A MESSAGE FROM LOGITECH

We help individuals and teams feel seen and heard regardless of location, so they can do their best work, their way. Our solutions comprise a complete ecosystem of video conferencing hardware, software, services, and world-class partnerships. From boardrooms to living rooms, hot desks to huddle spaces—we’ve got you covered.

Learn more