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Apple Supplier Broadcom Negotiating Deal for VMware

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Apple supplier Broadcom is currently in talks to take over cloud-computing company and virtualization pioneer VMware — reports Bloomberg.

Broadcom, primarily a chipmaker, manufactures hardware solutions for wireless communications and more in both consumer and enterprise products. The company is one of Apple’s largest U.S.-based suppliers, providing Bluetooth, Wi-Fi, and other wireless ships for the iPhone and other Apple products.

Apple’s business accounted for 20% of Broadcom’s net revenue in 2019 and 25% in 2018. Broadcom announced $15 billion USD worth of supply contracts with Apple in January 2020, which are set to end in mid-2023. It is currently unclear if the company will see more business from Apple given the latter’s efforts to shift as much component production in-house as possible.

Making a play for VMware demonstrates a growing appetite from Broadcom to expand into the software space. Broadcom has become one of the most diversified companies in the chip industry through a series of acquisitions under company CEO Hock Tan’s leadership, and software is the logical next step.

VMware is known for inventing virtualization software, which lets users divide the resources and workload of one computer into smaller units, each running in its own independent instance on the same system.

With virtualization, you can essentially split one computer into smaller systems, each a full computer in its own right, and run a different workload on each. Even though it has long since made its way to consumer hardware, virtualization remains most useful in the server space.

VMware was founded in 1998 and has since been through several mergers and acquisitions. Today, VMware primarily makes virtual remote system access software for the enterprise and consumer sectors, as well as other cloud-computing solutions.

Negotiations between Broadcom and VMware are ongoing and there is no guarantee that a deal will be struck, people familiar with the situation said.

If the two companies do reach an agreement, the acquisition will be one of Broadcom’s largest yet — although not as big as the unsuccessful $105 billion bid Tan made for fellow chipmaker Qualcomm back in 2017. The acquisition will also rank among the biggest-ever takeovers of a tech company.

Tan told analysts during a post-earnings call in March that Broadcom had the capacity for a “good size” acquisition.

“Investors have been increasingly focused on Broadcom’s appetite for another strategic or platform enterprise software acquisition—especially given the recent compression in software valuation,” analysts at Wells Fargo wrote.

“An acquisition of VMware would be considered as making strategic sense; consistent with Broadcom’s focus on building out a deepening enterprise infrastructure software strategy.”

VMware jumped up 21% on the stock market to a valuation of $48 billion on Monday after news of the acquisition talks broke. Broadcom, meanwhile, commands a market value of around $219 billion.

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