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Europe greenlights Broadcom's $61B VMware buy

Chip biz pledged to allow hardware interoperability

The European Commission has granted conditional approval for the acquisition of VMware by Broadcom.

"Broadcom provided the European Commission with a technology access remedy that preserves interoperability, a core principle that would not have changed as a result of this transaction," Broadcom said in a statement issued today. "Broadcom did this to fully address the concerns expressed by the European Commission, and Broadcom welcomes the Commission's decision to accept this access remedy."

Those "concerns" centered on the potential for the two companies to "restrict competition in the market for certain hardware components which interoperate with VMware's software." The Commission named Network Interface Cards, Fiber Channel Host-Bus Adapters, and storage adapters, and imagined a world in which Broadcom made only its own versions of such hardware compatible with VMware's stack.

The Register rated the possibility of such action as very slim because VMware has always been neutral towards hardware providers (although Dell did get friends with benefits status during the company's tenure as Virtzilla's owner).

Broadcom's "remedy that preserves interoperability, a core principle that would not have changed as a result of this transaction," appears to therefore represent a promise not to do something the company never planned to do.

An organizational separation between the team working on Broadcom's HBAs and the team in charge of third-party certs and technical support was also agreed with the Commission.

The decision means Broadcom's oft-stated goal of completing the transaction before November 1 remains in play, although US and UK regulators are yet to have their say on the matter.

In a statement, Margarethe Vestager, executive veep in charge of competition policy at the EC, said: "Broadcom holds a very strong position in the market for the supply of certain hardware components. VMware is a key server virtualisation software provider. By acquiring VMware, Broadcom could restrict or degrade interoperability between VMware's leading server virtualization software and some competing hardware components. But the commitments offered by Broadcom will enable its only rival Marvell, to continue competing on equal footing and ensure a similar protection for any future entrants."

The UK's Competition and Markets Authority (CMA) expressed similar concerns about the deal. Broadcom's willingness to agree to a remedy bodes well for its negotiations with the CMA, which has pledged to deliver its verdict on the matter by the end of August.

The United States' Federal Trade Commission (FTC) has said less about its potential concerns with the deal, but Broadcom is clearly willing to make a case for its passage.

Which probably brings VMware users closer to contemplating what a Broadcom-owned VMware would mean.

Broadcom has promised to boost VMware's R&D budget by $2 billion to develop new hybrid multicloud offerings. Broadcom has also promised that acquiring VMware will deliver an extra $8.5 billion of pro forma EBITDA within three years of the deal closing.

Broadcom has increased profits at its previous software acquisitions by cutting costs and reducing R&D. Exactly how it plans to spend more and increase profits at VMware remains unknown.

And according to analyst firm Gartner, that uncertainty has plenty of VMware customers worried. In its May Market Guide for Server Virtualization, which covers VMware's core offering, Gartner rated the acquisition a "disruption" to the market that "will drive 50 percent of enterprises [to] reevaluate their server virtualization needs and explore replacement server virtualization technologies (up from 10 percent in 2022)."

The document also found that server virtualization is waning, albeit slowly.

"Despite cloud migration and container adoption, 70 percent of datacenter x86 workloads will continue to use hypervisor-based virtualization through 2027 (down from approximately 80 percent in 2020)," the document states.

VMware of course plays in many more markets than server virtualization. ®

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