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Broadcom/VMware: mature software stars are cash cows for the downturn

VMware has added billions to Michael Dell’s fortune. Hawk Tan hopes it will do the same for him. Broadcom, the U.S. technology group Tan manages, closes with a blockbuster acquisition for the cloud business that could cost it more than $ 50 billion.

The acquisition of VMware will complete Broadcom’s transformation. Tan has turned this semiconductor roll into a stable of mature software stars with mediocre growth but impressive cash production.

In the last two years, Broadcom shares have risen 82%, long before the S&P 500, giving Tan credibility in its biggest bet to date. It would not be surprising if Dell joined the trip.

VMware was a pioneer of so-called virtualization software for enterprise customers. It has evolved into a mature technology provider that provides a bridge to large companies that want to transfer data from site centers to the cloud. When Dell’s renowned technology group acquired data storage provider EMC in 2016 for $ 62 billion, EMC’s crown jewel asset was a majority stake in VMware.

The Trump administration has canceled Broadcom’s attempt to acquire Qualcomm’s rival chip group in 2018. Tan began acquiring CA Technologies and Symantec’s enterprise security unit, spending $ 30 billion. His feeling was that the organizational ties with previous-generation software groups would continue for years, even as operations moved to the cloud.

Broadcom has been able to reduce costs and sell cross-product and services. Its gross profit rose to 75% compared to 63% four years ago. The cash flow is more than doubled.

VMware’s part was that of Peony in a larger game, first as an affiliate of EMC and then of Dell. The latter distributed its stake to its investors last fall. This has left Michael Dell personally as VMWare’s largest shareholder.

Dell has transformed its long-standing hardware company into an enterprise software powerhouse through mergers and acquisitions. Traditional equipment manufacturers have fallen out of favor with investors. They prefer high-growth SaaS and cloud companies. Value technology is the focus of Nesher Funds and registered entities like Broadcom and Dell.

As interest rates rise and high-altitude flights plummet to Earth, companies that focus on high profits and efficiency may return to their advantage. Broadcom, which has an enterprise value of $ 250 billion, will likely have to offer its own shares to VMware shareholders. Michael Dell’s relationship with the business may be far from over.

Lex recommends FT’s Due Diligence newsletter, a curated briefing on the world of mergers and acquisitions. knock Here To register.

Broadcom/VMware: mature software stars are cash cows for the downturn Source link Broadcom/VMware: mature software stars are cash cows for the downturn

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