By Mousume Roy, Contributing Writer, HCL Technologies Ltd. 

 

Broadcom Inc. is in advanced talks to acquire cloud-computing company VMware Inc., according to people familiar with the matter reports. The discussions are ongoing and there’s no guarantee they will lead to a purchase.

VMware currently has a market valuation of about $40 billion, while Broadcom’s is around $222 billion. Assuming a typical premium, the potential deal price would be higher, though the terms under consideration couldn’t be learned. 

This acquisition would vault Broadcom into a highly specialized area of software, and further diversify its business into enterprise software, following its $18.9 billion acquisition of CA Technologies and its $10.7 billion purchase of Symantec Corp’s security division in the last four years.

Bloomberg earlier reported, VMware has a strong position in the market for “hybrid” cloud, where large companies mix public cloud services like those of Amazon.com Inc. and Microsoft Corp. with their own private networks.

In March, Broadcom's Malaysia-born chief executive Tan Hock, who has built one of the largest and most diversified companies in the chip industry, told analysts on a post-earnings call 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," Wells Fargo analysts wrote after Bloomberg News' report.

"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."

Broadcom, a semiconductor powerhouse makes a wide range of electronics, with its products going into everything from the iPhone to industrial equipment. But data centres have become a critical source of growth, and bulking up on software gives the company more ways to target that market.