But examination of the deal continues in the US and UK.
- The European Union competition regulators today conditionally approved Broadcom‘s purchase of cloud provider VMware.
- Regulators in the U.S. and U.K. continue to investigate the impact of the deal on their markets.
- MoginRubin’s Tim LaComb last wrote about it HERE. Also, see additional commentary and background.
- Attention Editors and Reporters: To speak with an authority on competition law at MoginRubin, contact Sheilah Buack by email or at +1 619.687.6611.
Broadcom Inc.’s acquisition of cloud computing provider VMware, Inc., has received approval from European Union competition regulators, marking a significant milestone in the deal. Uncertainty was hanging over the merger because of the EU probe, but investigations continue at the U.K. Competition Markets Authority and the Federal Trade Commission. In addition to the EU, the merger has been cleared in Australia, Brazil, Canada, South Africa, and Taiwan.
Announced on May 26, 2022, Broadcom’s eye-popping $61 billion acquisition of VMware marked the third-largest tech merger in decades. Not surprisingly it captured the attention of antitrust agencies worldwide. Broadcom is a leading hardware provider that has been expanding into the software space. VMware is one of the world’s leading enterprise software companies specializing in cloud computing and virtualization. Its main product is virtualization software that enables IT operators to create “virtual machines,” virtual versions of computer resources, such as hardware, operating systems, storage devices, and network resources. Both companies are based in the U.S.
After its preliminary investigation the EC found that the transaction could potentially harm competition in the markets for network interface cards (NICs), storage adapters, and Fibre Channel Host-Bus Adapters (FC HBAs).
After a deeper investigation the EC confirmed part of its assessment, that the deal would harm competition in the global market for FC HBAs. However, the Commission said it was no longer concerned about the deal’s impact on competition for NICs and storage adapters because Broadcom isn’t strong in that space. Nor was it concerned about the SmartNIC market because Broadcom wouldn’t have a financial incentive to hinder their development by other providers. The Commission said Broadcom would not be able to bundle its virtualization software with VMware’s product because they are purchased by different customers within organizations at different times.
Where the Broadcom-VMware deal could damage competition would be in the FC HBA space, the EC continued to believe. Combined with VMware, the new company would have the “ability and incentive to foreclose” rival Marvell Technology, Inc., for the supply of FC HBAs,”by restricting or degrading the interoperability between VMware’s server virtualization software and Marvell’s hardware.” Broadcom is dominant or at least very strong in that space, the EC says.
To close the deal, Broadcom will have to execute on several commitments it proposed, such as guaranteed interoperability to allow for the development of third-party FC HBAs and interoperability with VMware’s virtualization software. VMware will have to give access to third parties the information and support necessary for interoperability, and at the same time it does so for Broadcom. Finally, Broadcom will have to separate internal teams working on its FC HBAs and those handling third-party certification and tech support. Full compliance will be required for 10 years.
On the worldwide market for the supply of FC HBAs, Broadcom and Marvell are the only two players that develop and supply FC HBA. The main customers for FC HBAs are server OEMs, or original equipment manufacturers. OEMs such as Dell, Cisco, Lenovo, Hewlett Packard Enterprise, IBM, and Fujitsu supply servers with these components to their end-customers.
Marvell’s revenues are $5.9 billion, of which $1.47 billion comes from its enterprise networking operations. Semiconductor giant Broadcom brings in more than $33 billion a year, of which more than $7.3 billion comes from its infrastructure software business. According to Persistence Market Research, this global market reached $5 billion at the end of 2021 and is expected to more than triple by 2032.
Editor’s note: Additional details added on July 12, 2023.