Hello and welcome to Protocol Enterprise! Today: Broadcom formalizes VMware intentions, why chipmakers are rushing to master a new transistor design, and this week’s enterprise technology changes.
Cloud security best practices are still current in most companies, according to a new study from Canonical. Only 13.5% of respondents believe they have “mastered” container-centric cloud security, but 38% said they consider security the most important factor when setting up a cloud infrastructure.
Wall Street lights shine on BroadWare
If Wall Street were 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 business portfolio, as part of CEO Hock Tan’s quest to turn it into a software game. Through multiple billion-dollar acquisitions, what has emerged is a conglomerate beloved by Wall Street analysts but difficult to view as a cohesive operation with a clear core business.
While Broadcom’s acquisition of VMware for $61 billion will further broaden the chipmaker’s growth prospects beyond semiconductors by giving it more clout in enterprise software and recurring revenue, the immediate benefits are less apparent for VMware.
- Broadcom officially announced the deal on Thursday morningseveral days after its intention to acquire VMware leaked.
- The company will pay $61 billion in cash and stock for VMware and integrate Broadcom Software Group, which contains previous acquisitions CA Technologies and Symantec, into a new organization called VMware.
- “We believe that together, Broadcom’s software assets for the distributed enterprise can seamlessly complement and augment VMware’s multicloud offerings in the areas of operations management, value stream management and DevOps, and security to span the entire application lifecycle,” said Tom Krause, president of Broadcom Software Group, in a conference call following the announcement.
- “We are creating one of the largest infrastructure technology companies in the world,” Tan said on a conference call Thursday to discuss the deal.
The acquisition of VMware is not a total surprise.
- “We have for several years expressed considerable caution toward VMware given our concerns about VMware’s on-premises exposure, its overall growth profile, and its ability to perform consistently,” Gregg said. Mizuho Group analyst Moskowitz in a research note on Monday after news of a pending deal broke.
- Under the terms of the agreement, VMware will have until July 5 to solicit further offers from other potential buyers.
- Given the $61 billion price tag, however, there are only a handful of enterprise tech companies that have the resources to strike such a deal.
- The Big 3 cloud providers (AWS, Microsoft, and Google), Cisco Systems, and Intel could be logical suitors to buy VMware, but some industry analysts don’t expect other suitors to step forward and thwart the move. Broadcom agreement.
Based on its track record following its two other major software acquisitions – CA Technologies in 2018 and Symantec’s enterprise security business next year – Broadcom could target more than $5 billion in cost savings to improve VMware margins and profitability, Bernstein analysts say.
- With VMware under its belt, it leaves Broadcom with about $90 billion in debt, according to an analysis by Evercore chip analyst CJ Muse, but that would roughly triple the size of Broadcom’s software business.
- Broadcom plans to fund the acquisition with $32 billion in new debt financing from a consortium of banks.
- “It’s a great franchise,” Tan said in a call with financial analysts Thursday. “In terms of monetization, it’s all about execution. We think we’ll perform much, much differently – hopefully better – than what we’ve seen 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 businesses have underperformed Wall Street expectations over the past four of the last five quarters.
Yet VMware has played a crucial role in the development of enterprise technology over the past two decades, only to wind up cash-generating machine for hardware business time and time again, like this thread on Twitter from AWS’s 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 many avenues to independently deliver shareholder value as it continues its transition to the SaaS.
- And it’s clear that several former VMware executives and employees were a bit disappointed to see the company end up with a buyer like Broadcom.
- “Does anyone have $62 billion I can borrow?” wondered Steve Herrodformer longtime CTO of VMware.
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Chipmakers at the Gates of Dawn
A once-in-a-decade shift is underway involving one of the most basic building blocks of computer chips, and it has the potential to reshuffle the pecking order of the chip giants for years to come.
Intel, Samsung and TSMC are racing to achieve a generational leap in transistor technology. This leap has to happen to achieve anything close to the computing demands demanded by the ideas behind the metaverse, to produce AI that’s no joke, to create real self-driving cars, or even to 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 do one thing: they more tightly control the flow of electricity received by each transistor. Modern chips can have over 30 billion transistors on a single device, and in some cases tens of billions more. In 2025, Gartner expects chipmakers to generate about $5 billion in revenue from new technology, up from nothing last year.
Chip companies must crank out a lot more computing power each year to deliver a version of the future promised by the tech titans. This requires some of the most complex and expensive manufacturing equipment on the planet, and the development of even more creative ways to improve fundamental aspects of chip construction. This means making already atomic-sized features even smaller. This process, loosely described as Moore’s Law, has kept the chip industry going for half a century, but it’s getting harder and harder.
“The rate at which we are decreasing is certainly slowing down, for the most part,” said Kevin Moraes, vice president of Applied Materials.
Read the full story here.
— Max A. Cherney (E-mail | Twitter)
Over the past week, executives from Zoom, GitHub, LinkedIn and Nutanix have left for new roles. Here’s what else happened with the corporate tech folks.
Laura Padille is now VP of Partners at Airtable. Padilla previously led partner and platform sales at Zoom and worked at Nutanix and Box before that.
Manesh Sharma is now COO at Lambda Test. Sharma was previously Managing Director of GitHub India and previously headed Partner Sales at Adobe.
Ron Sanderson was promoted to Redpoint Global CISO. Sanderson previously served as director of information security.
Doug Myers joined ServiceTitan as SVP of Operations. Myers was previously vice president of operations at LinkedIn.
Huang Olive is General Counsel at ServiceTitan. Huang previously served as Nutanix’s general counsel.
— Aisha counts (E-mail | Twitter)
Around the company
Lacework has confirmed to Protocol that it has laid off 20% of its workforce A big setback for the well-funded cloud security startup on Wednesday.
Splunk reported a slight rebound, tops Wall Street estimates for earnings and trim its net loss while increasing its guidance for the next quarter.
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Thanks for reading – see you tomorrow!