Even though China has approved the Broadcom acquisition of VMware, the ensuing delay has caused ripples in the cybersecurity industry, and potentially affected VMware's standing and share value. Despite VMware's Q2 fiscal year 2024 revenue growth, the contrast in share value trends between VMware and Broadcom is evident. The cybersecurity market, projected to reach over $282 billion by 2027, adds complexity to the competitive landscape amid the delay in the deal closing and lack of a clear story to date in the cybersecurity segment with the VMware acquisition, says GlobalData, a leading data and analytics company.
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 analysis highlights that VMware’s total revenues for Q2 of fiscal year 2024 was $3.41 billion, an increase of 2% compared to fiscal 2023. However, the delay in the transaction closing has impacted VMware’s share value. This is the opposite effect to Broadcom shares which a week ago were at a positive $957.52, potentially influenced by Broadcom’s direction on artificial intelligence (AI) in relation to its semiconductor chip business.
GlobalData forecasts the total cybersecurity market to grow at a CAGR of 12.56% and reach over $282 billion in 2027. The key sub product areas include network, endpoint, and cloud security, all of which are aligned with both Broadcom and VMware’s cybersecurity portfolio strengths.
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 announced on 30 October 2023 that the acquisition of VMware will close before the expiration of the merger listed as 26 November 2023. The company also stated that the parties had received legal merger clearance across key countries and foreign investment control clearance in all necessary jurisdictions. Therefore, China’s approval on the eleventh hour will be a relief to shareholders across both organizations.
The US’ tough stance with China on chip controls could have been a catalyst for the deal not going through. But equally, this month’s presidential meetings between Xi Jinping and Joe Biden during the Apec summit, could have played a role in lowering the barriers between the two state powers to do business.
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”.
