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At present, in addition to the new breakthrough of the AI model, Broadcom has a series of operations after the acquisition of VMware, and every action has earned enough eyeballs. Why did a merger between two U.S. companies cause such an uproar in the global market? Judging from the U.S. market in the second half of 2023, Broadcom will beat the "popular fried chicken" Nvidia, and Nvidia's share price will rise by 1452%，Broadcom is up to
Who is Broadcom? Why is the limelight overshadowing Nvidia, which has to pay high "Nvidia taxes" for tech giants?
Broadcom, the world's oldest semiconductor company. In 1991, a teacher at the University of California, Los Angeles, with a student, invested $10,000 to establish Broadcom in Irvine, Southern California, from a small company with a small name to the first echelon of global communication chip design companies. (Appendix 1: Highlights of Broadcom's Historical M&A).
*: Broadcom official website).
Broadcom's development history can be called a history of mergers and acquisitions, but as we all know, mergers and acquisitions are not easy, from the perspective of global statistics, the probability of failure of mergers and acquisitions is more than 50%; In China, the probability of failure of corporate mergers and acquisitions is more than 60%, and the probability of failure of cross-border mergers and acquisitions is more than 80%.
Whether Broadcom's merger and acquisition is successful or not is clear from looking at its performance in the secondary market.
*: Finet).
There was a joke that Chen Fuyang, the helmsman of Broadcom, may be "staring at the screen 24 hours a day looking for prey". In the past ten years, no matter whether the market environment is good or bad, and the semiconductor industry is at the trough or peak of the cycle, it has not affected Broadcom's enthusiasm for mergers and acquisitions.
This time, the global market watched the whole process of the "hunter" hunt through the screen. In May 2022, Broadcom announced the signing of a merger agreement with VMware. In November 2023, Broadcom officially announced the completion of the acquisition of VMware, a virtual software service provider, in a transaction size of approximately $69 billion, including a treaty purchase price of $61 billion and the latter's debt of $8 billion. This merger can also rank among the top three in the entire history of science and technology. Reflected in the Broadcom stock price, the ** price on May 25, 2022 is 531$63, $1143 on January 19, 2024$91, more than doubled.
If you want to learn the "hunter" M&A idea, you might as well start with VMware's value analysis.
First of all,The value advantage of standardized pure software products is highlighted, and the market share is highlightedVMware, which has a high gross profit margin, is a high-quality target that meets the hunter's aesthetics。VMware was founded in 1998 and is mainly engaged in server computing virtualization products. According to China's Announcement on the Anti-Monopoly Review Decision of the State Administration for Market Regulation on Approving Broadcom's Acquisition of VMware's Equity in VMware with Additional Restrictive Conditions (hereinafter referred to as the "Announcement"), VMware's share of the global non-public cloud virtualization software market has reached 92-97%.
Since 2007, VMware has been listed on the New York Stock Exchange, according to the financial data disclosed that as a pure software manufacturer, VMware's revenue growth rate is about 8% 11%, the gross profit margin has always remained at 85%, and the net profit margin is around 15%, which is much higher than the 53 in the semiconductor sector in terms of gross profit margin alone8% up.
To a certain extent, this indicator is more reflective of the quality level of the business model, which is second only to Adobe and Intuit in the market, and far better than companies such as IBM and Google. Some analysts believe that due to the addition of VMware and the slight growth of the existing business, Broadcom's software business revenue may increase by 163% by fiscal year 2024.
Another often overlooked attribute of VMware is strong free cash flow generation. VMware's TTM free cash flow generation is as follows:
Q2 FY2023: Free cash flow = 3$500 million.
Q1 FY2023: Free cash flow = 16$500 million.
Q4 FY2022: Free cash flow = 15$100 million.
Q3 FY2022: Free cash flow = 11$600 million.
Second,The global market for server virtualization still exists。It has always been said that cloud migration is a major trend in the digital transformation of enterprises, and the "cloud" generally refers to the native public cloud. The claim that the server virtualization market will be replaced by the public cloud has always existed, but it has not come true, and the analysis of this market in the "Announcement" of the State Administration for Market Regulation is more objective.
According to the announcement, according to the enterprise workload deployment model, virtualization software can be subdivided into three types: local data center, private cloud and public cloud. While public clouds offer cost advantages, traditional data centers and private cloud environments eliminate the need to share computing resources with others, have a higher level of control and privacy over sensitive data, better security, and greater flexibility, providing enough bandwidth and storage to meet ultra-low latency requirements and customization needs. As a result, virtualization software deployed in on-premises data centers and private clouds has significantly different service nature and security requirements than virtualization software deployed in public clouds.
Pat Gelsinger, former CEO of VMware, once said, "People will find that on-premise deployments are 30 to 40 percent cheaper than public clouds." ”
Because of this, the need for virtualization in traditional data centers and private clouds is always strong. Gartner, the world's leading IT research and consulting organization, released the 2023 Worldwide Server Virtualization Market Guide, which shows that 70% of data centers will continue to use hypervisor-based virtualization by 2027, despite the widespread adoption of containers.
In addition, according to the survey and analysis of Nissho Global Information ***gii, the global data center virtualization market demand is expected to increase from 91 in 2022$200 million to nearly $340 million by 2030USD 500 million, growing at a CAGR of 179%。
But,Virtualization software is subdivided into two categories: proprietary and open source, obviously VMware as the representative of proprietary virtualization software is more in demand, as the above "announcement" analysis, proprietary virtualization software in terms of function, reliability, compliance and security are better than open source virtualization software. A successful virtualization platform needs to meet the five dimensions of mature technology, comprehensive management, reliability, high availability, and disaster recovery. Completely free and open-source virtualization software is hard to do
Third,Beautiful and connotative, the function is the virtuous help of hardware manufacturers, and the software girl VMware has always been the favorite of the hardware brother。In 2003, memory manufacturer EMC started with 6The $2.5 billion** acquisition of VMware, followed by the $67 billion acquisition of EMC in 2015, led to the acquisition of VMware.
Taking the combination of Broadcom and VMware as a facet, we can see the rise of a new round of mergers and acquisitions in the semiconductor industry, and the important role played by software companies in this. When semiconductor giants have put together "soft power", semiconductor software technology and software companies have also ushered in their own spring.
According to Bloomberg's analysis, if the data center market is included in Broadcom's key revenue growth in the future**, then the software business with high gross margin advantages in this market will inevitably be a must for chip giants and Wall Street.
Fourth,At the heart of VMware's portfolio is its flagship product, server virtualization, which accounts for 65%-70% of its revenue structure at a stable time, making it a major contributor to performance**
The 70-year-old Chen Fuyang has made fewer appearances in front of Huang Jenxun and Su Lifeng, and is known as the "fierce predator" of the semiconductor industry. After the acquisition, Chen Fuyang usually adopts drastic business and personnel adjustments to improve the company's revenue, profit margin and other financial indicators, and drive the stock price all the way.
This feature has been verified after the completion of the acquisition of VMware, in addition to the large-scale layoffs of VMware global employees, Broadcom's business line has been drastically cut to show the ferocity of the "predator".
As announced on December 11, 2023, VMware has reached a new milestone over the past two years in streamlining and simplifying its product portfolio and transitioning from perpetual licenses to subscription models. We've simplified our portfolio into a few products focused on our best-of-breed technologies, VMware Cloud Foundation and VMware vSphere Foundation, as well as optional premium add-ons.
It can be seen that Broadcom hopes to use VMware's strong position to strengthen the binding of the entire infrastructure of customers and play more combinations with top customers.
Fifth,Broadcom and VMware have joined forces to build an ecosystem that integrates software and hardware.
The reason why Broadcom wants to acquire software manufacturers is probably related to its transformation and development. Chen Fuyang, CEO of Broadcom, once publicly said, "If anyone thinks that the semiconductor industry can grow at the current rate for a long time, it must be dreaming." I'm not a semiconductor person, but I know how to make money and run a business." Under Chen's leadership, Broadcom began to slowly experiment with other businesses, such as software.
In terms of business transformation, if Broadcom's transformation plan is successful, then Broadcom is bound to vigorously develop its software business and establish its own ecosystem, which means that it will attach great importance to the addition of VMware. Broadcom's semiconductor business is not like Dell's need for in-depth software and hardware products under the brand, and it is more inclined to choose neutral software products to complement its own ecosystem, and the cooperation with Broadcom, VMware also does not need to worry about the interests of other customers, which is in line with its own neutral positioning and market expectations.
Whether it is a hardware enterprise acquiring a software manufacturer or a software enterprise acquiring a hardware manufacturer, only by realizing "cross-border integration" and solving the problem of simultaneous development of software and hardware can we better adapt to the development and changes of new trends.
After the completion of the acquisition of VMware, Broadcom will have a complete set of software and hardware solutions in the field of communications, which will make up for Broadcom's software shortcomings, and also add hardware wings to VMware.
Market analysts believe that the contribution and assistance brought by the merger of VMware will make Broadcom's prospects more impressive. The company expects full-year revenue of approximately $50 billion for the fiscal year ending November 3, 2024, including VMware's contribution, and an adjusted EBITDA margin of approximately 60%.
Announcement of the State Administration for Market Regulation on Approving the Anti-Monopoly Review Decision of Broadcom's Acquisition of Weirui Company's Equity with Additional Restrictive Conditions.
The first observer: Fan Yuan, Chief Brand Officer of Yunhong
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