Sliding Doors

Image source: Blackboard, Carlos Huang - Shutterstock

What's going on?

US chipmaker Broadcom is reportedly in talks to buy software company VMware, in a deal analysts reckon could be worth more than $50 billion.

What does this mean?

Broadcom’s sliding doors moment came in 2018, when its big-money bid to buy fellow chipmaker Qualcomm was thwarted by regulators’ national security concerns. The letdown motivated the company to shift its strategy, in view of transforming itself into a diversified tech company that offers everything from chips to cloud computing. It kicked things off by buying Symantec’s cybersecurity division and CA Technologies for $11 billion and $19 billion respectively, and now VMware – one of the cloud industry’s key players – seems to have caught its eye. That stands to reason: data centers and the cloud have become critical areas of growth for the company.

Why should I care?

The bigger picture: What goes up…
It’s no surprise that Broadcom has been trying to reduce its reliance on chips over the past few years. Like other chipmakers, the company’s sales have boomed as semiconductors have become both more vital and harder to get hold of, with its chip segment growing around 20% last year alone. But the company has been vocal about the fact that the industry’s growth simply isn’t sustainable, admitting that it’s expecting to go back to its historical average of 5% a year sooner or later.

For markets: Who said dealmaking was dead?
It’s also no surprise that Broadcom thinks now’s the time to make this bid: VMware’s market value is now around half that of its peak in 2019, and Broadcom’s has more than doubled in the same period. That just goes to show that there’s still very much a market for big tech deals, as inflation and interest rate hikes bring down valuations and encourage cash-rich buyers to snag a bargain.

Originally posted as part of the Finimize daily email.

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