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EU probes Broadcom/VMware deal over impact on hardware • The Register

Jan 09, 2024

+COMMENT The European Commission has opened what it describes as an "an in-depth investigation" into Broadcom's acquisition of VMware.

The reason given for the probe is: "The transaction would allow Broadcom to restrict competition in the market for certain hardware components which interoperate with VMware's software."

The Commission's (EC's) brief announcement of its probe notes that Broadcom makes Network Interface Cards, Fiber Channel Host-Bus Adapters, and storage adapters, and that VMware's products are compatible with such products from many vendors.

Here's the Commission's statement of competition concerns:

The Commission's preliminary investigation indicates that the transaction may allow Broadcom to restrict competition in the market for the supply of NICs, FC HBAs and storage adapters by:

This, in turn, could lead to higher prices, lower quality and less innovation for business customers, and ultimately consumers.

The Commission also plans to consider whether Broadcom would do things to harm the development of SmartNICs by rival vendors. VMware has made the accelerators the centerpiece of vSphere 8, promoting they can handle networking and security chores that occupy up to 20 percent of a server's CPU cores.

Another concern is that Broadcom could bundle VMware's products with its own mainframe and security wares, "and no longer offer VMware's virtualisation software as a stand-alone product reducing choice and potentially foreclosing rival software providers."

The EC appears to imagine a world in which all NIC, HBA and storage adapter vendors other than Broadcom are banished from VMware's hardware compatibility list. Or perhaps a world in which VMware's reference architectures ignore suppliers other than Broadcom.

Which just isn't how VMware operates.

"VMware's success over the last two decades has been predicated on hardware compatibility," Gartner vice-president analyst Michael Warrilow told The Register. "If Broadcom were to deviate from that they would suffer the wrath of every major and minor server and storage hardware vendor in the industry. It would be commercial suicide and would obliviate the business case for the acquisition."

I think he's right. If Broadcom does the things the EC worries about, it deserves to have the book thrown at it by regulators and VMware customers alike.

VMware has long positioned itself as a neutral player and during its time under the ownership of EMC and Dell repeatedly demonstrated it can operate in good faith to nourish its owners’ rivals.

The company has consistently worked to make its wares work with any server, storage, NIC, HBA, GPU and CPU vendor. It does so because while VMware dominates the server virtualization market, rivals such as Microsoft, Nutanix, and open source projects all offer strong alternatives to the vStack. Restricting user choice for hardware would therefore be an act of self-harm.

The notion that Broadcom would change VMware's ethos and make only its own kit compatible – or optimally interoperable - is therefore far-fetched because Broadcom can surely see that imposing that decision on VMware customers would irritate them immensely.

And for what? Even a million extra NIC and HBA sales a year will not be the win that makes the $61 billion acquisition of VMware a success.

Broadcom CEO Hock Tan is too experienced to mess up VMware for the tiny prize of selling more NICs. He's also too experienced not to know that customers want and need choice: Broadcom does not have a NIC or HBA for every occasion, and customers will sometimes want and need to consider rivals.

Oh and a little thing called COVID-19 has shown the world the folly of going all-in with a single supplier. As geopolitical conflict roils, would Broadcom really shackle VMware customers to a single supply chain?

The EC's concerns that only selling VMware products in bundles is more worthy because VMware – like many enterprise software vendors – packs its licenses with requirements to buy more stuff and/or increase spend over time. It's conceivable that some Symantec or CA wares could be bundled with VMware products, and the resulting packages would include some classes of software customers could acquire from rival vendors.

Or VMware customers could just suck it up and endure some shelfware. They would not be the first to do so.

I expect that Broadcom will be quite relieved by the EC's angle on its probe. The company has never stated that acquiring VMware is about nourishing its hardware business, instead suggesting it wants to diversify to become a supplier of more of an organisation's overall needs.

The EC probe therefore misses the live issues regarding the deal.

Broadcom has recently repeatedly stated that it will not increase prices for VMware products. It needs to do so because Broadcom's past software acquisitions did see it hike fees. Yet the EC is silent on that concern.

It's also silent on jobs, which are sure to go.

The probe also does not obviously consider the future. I’ve previously argued that the Broadcom/VMware combination could make for a mighty integrated IoT stack. Perhaps the Commission can get Broadcom to agree to a far-reaching voluntary ban on exclusionary bundling that stops such a stack from being non-competitive.

Or perhaps it will focus on NICs and fiber channel, which will prevent Broadcom indulging in self-sabotage in those mostly settled markets.

The EC has set a deadline of May 11th, 2023, to make a decision on whether to allow the deal to proceed. The focus on hardware, I believe, means Broadcom will make concessions that don't hurt it a bit in order to get the deal done.

And meanwhile Broadcom gets to sort out the UK's and USA's probes into the acquisition. ®

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