Although the Broadcom acquisition of VMware has been approved by China, the resulting delays have stirred the cybersecurity sector, potentially impacting VMware’s reputation and market value. Despite a revenue increase in VMware’s second quarter of fiscal year 2024, the diverging share value trends of VMware and Broadcom are noticeable. The cybersecurity market, expected to surpass $282 billion by 2027, complicates the competitive environment given the protracted finalization of the deal and the ongoing uncertainty in the cybersecurity domain following VMware’s acquisition, as noted by GlobalData, a prominent data and analytics firm.
Rajesh Muru, Principal Technology Analyst at GlobalData, says: “VMware is an established player with a solid foundation and strategy, and this cuts across its cybersecurity portfolio. Even though China has approved the deal with restrictive conditions, the acquisition post closure will continue to create uncertainty for its cybersecurity customers, particularly on larger cybersecurity deals, in an already aggressively competitive market.”
GlobalData’s analysis indicates that VMware’s total revenue for the second quarter of fiscal year 2024 was $3.41 billion, marking a 2% rise from fiscal year 2023. Nonetheless, the postponement in finalizing the transaction has negatively impacted VMware’s share price, in stark contrast to Broadcom’s shares, which were favorably valued at $957.52 a week prior, likely boosted by Broadcom’s strategic focus on artificial intelligence (AI) in its semiconductor chip sector.
GlobalData predicts a 12.56% compound annual growth rate for the cybersecurity market, expecting it to exceed $282 billion by 2027. Significant sub-sectors include network, endpoint, and cloud security, which align with the cybersecurity capabilities of both Broadcom and VMware.
Muru observes: “In a cybersecurity market that will be fueled with end-to-end security monitoring for distributed customer cloud environments in zero trust settings, coupled with observability data monitoring, the competition is aggressive with the likes of Cisco, Palo Alto Networks and Zscaler. If Broadcom is not careful, the potential impact on VMware’s brand equity could be high in the short-term due to customer uncertainty, and this could cover portfolio consolidation for its cybersecurity business.”
Broadcom declared on October 30, 2023, that it expects to complete the VMware acquisition before the merger deadline of November 26, 2023. The company also confirmed that it has obtained the necessary legal and foreign investment approvals from key countries. Hence, China’s last-minute consent will bring solace to stakeholders of both companies.
The stringent position of the US regarding China’s chip regulations might have jeopardized the deal. However, the recent presidential meetings between Xi Jinping and Joe Biden at the Apec summit may have eased the diplomatic tensions, facilitating business dealings between the two states.
Muru concludes: “It must be a relief for both companies that this deal has gone through. But the by-product of this stand-off has been the possible decremental impact on VMware’s overall business and share value, including its cybersecurity business, as customers are swayed towards competitors with more robust and stable future cybersecurity product lines.”
