Broadcom: The New IBM?

    Broadcom (AVGO) is well on its way to becoming one of the biggest companies in information technology (IT) – and if it succeeds in acquiring VMware, it could arguably become the most important company in enterprise technology. Here’s why.

    First, its chip business is second to none. Broadcom semiconductors can be found in everything from your Raspberry Pi and mobile phone to your data center’s high-end storage and networking devices, plus sensor, automotive, LED and many other cutting-edge applications.

    And for the last few years, the company has been diversifying into higher-margin enterprise software. CEO Hock Tan saw enterprise software as an important growth market for the company, so they bought CA’s IT management business and Symantec’s enterprise security business – two prescient moves, particularly in security – and now it looks like Broadcom may be acquiring VMware.

    Acquiring VMware would give the company a strong position in critical enterprise cloud computing and virtualization markets on top of all those other important markets. The growing breadth of the company’s enterprise offerings has us wondering if we’re looking at the emergence of the new IBM.

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    IBM’s annual revenues have been falling for more than a decade, from a peak of $106.9 billion in 2011 to around $60 billion now. About $20 billion of that decline came from spinning off its services unit as Kyndryl, but much of the drop has come as Big Blue has been repositioning itself for a cloud and AI world.

    Over that same time period, Broadcom’s sales have soared from about $2 billion in 2011 to around $30 billion now. If VMware’s revenues are added to that mix, Broadcom would have sales of more than $40 billion, roughly where Oracle is today.

    Wall Street has been valuing Broadcom as an emerging player with a great deal of potential. Among Forbes 2000 tech companies, Broadcom is 19th in revenue. But more importantly, it’s 9th in market capitalization – investors are assigning it a value well above its current level of business (see chart below; Forbes data from earlier this month). Interestingly, just about every company with a higher market value on that list gets the bulk of its revenues from consumers.

    RankNameCountrySalesMarket Value 
    1Apple Inc.United States$378.7 billion$2.6 trillion 
    2Alphabet Inc.United States$257.5 billion$1.6 trillion 
    3Microsoft CorporationUnited States$184.9 billion$2.1 trillion 
    4Samsung GroupSouth Korea$244.2 billion$367.3 billion 
    5Tencent Holdings Ltd.China$86.9 billion$414.3 billion 
    6Meta PlatformsUnited States$117.9 billion$499.9 billion 
    7Intel CorporationUnited States$79 billion$190.3 billion 
    8Taiwan Semiconductor Manufacturing Co.Taiwan$61.5 billion$494.6 billion 
    9Cisco Systems Inc.United States$51.5 billion$213.4 billion 
    10IBMUnited States$67.3 billion$124.3 billion 
    11Oracle CorporationUnited States$41.8 billion$203.3 billion 
    12Hon Hai Precision Industry Co.Taiwan$214.6 billion$49 billion 
    13Broadcom LimitedUnited States$28.5 billion$239.6 billion 
    14SAP AGGermany$33.2 billion$124 billion 
    15SK Hynix Inc.South Korea$37.5 billion$61.3 billion 
    16Dell Technologies Inc.United States$106.8 billion$35.6 billion 
    17Accenture PlcIreland$56.7 billion$196.9 billion 
    18Micron Technology Inc.United States$31.2 billion$77.5 billion 
    19QUALCOMM Inc.United States$36 billion$149.7 billion 
    20NVIDIA CorporationUnited States$26.9 billion$489.8 billion 

    Broadcom is as ambitious as it is well positioned, so it’s reasonable to assume that the current trend will continue. The company in the past has tried unsuccessfully to acquire analytics giant SAS and fellow mobile chip maker Qualcomm. An analytics acquisition still makes sense, as nothing is hotter in enterprises than data analytics. But a VMware acquisition would potentially be an even better fit; the two are complementary in data center and cloud operations, so there would be little overlap.

    Expect Broadcom to continue to rise even after the anticipated VMware deal. Privately, some employees have said they wouldn’t be surprised to see Broadcom acquire Intel someday. Neither would we.

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