EU investigates Broadcom/VMware deal over hardware impact • The Register

+COMMENT The European Commission has launched an “in-depth investigation” into Broadcom’s acquisition of VMware.

The reason for the investigation is given: “The transaction would allow Broadcom to restrict competition in the market for certain hardware components that work together with VMware’s software.”

The Commission’s (EC) brief announcement of its investigation notes that Broadcom manufactures network interface cards, Fiber Channel host bus adapters and storage adapters and that VMware’s products are interoperable with such products from many vendors.

Here is the Commission’s statement on competition concerns:

The Commission also plans to examine whether Broadcom would do anything to hamper the development of SmartNICs by competing vendors. VMware has made the accelerators the heart of vSphere 8, touting that they can handle networking and security tasks that use 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 products, “and no longer offer VMware’s virtualization software as a standalone product, reducing choice and potentially shutting out competing software vendors.”

analysis

The EC seems to envision a world where all NIC, HBA and storage adapter vendors except Broadcom are banned from VMware’s hardware compatibility list. Or perhaps a world where VMware’s reference architectures ignore vendors other than Broadcom.

VMware just doesn’t work that way.

“VMware’s success over the past two decades has been built on hardware compatibility,” said Michael Warrilow, vice president analyst at Gartner The registry. “If Broadcom deviated from this, they would incur the wrath of every server and storage hardware vendor in the industry, big and small. It would be commercial suicide and would destroy the business case for the acquisition.”

I think he’s right. If Broadcom is doing the things the EC is concerned 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 tenure at EMC and Dell has repeatedly demonstrated that it can act in good faith to feed its owners’ competitors.

The company has consistently worked to make its wares work with every server, storage, NIC, HBA, GPU and CPU vendor. Because while VMware dominates the market for server virtualization, competitors like Microsoft, Nutanix and open source projects all offer strong alternatives to the vStack. Limiting the user’s choice of hardware would therefore be an act of self-harm.

So the idea that Broadcom would change VMware’s ethos and just make its own kit compatible — or optimally interoperable — is a stretch, because Broadcom can certainly see that it would irritate them immensely to force that choice on VMware customers.

And for what? Even a million additional NIC and HBA sales per year won’t be the win to make VMware’s $61 billion acquisition a success.

Broadcom CEO Hock Tan has the skills to mess up VMware for the tiny price of selling more NICs. He’s also too experienced not to know that customers want and need choice: Broadcom doesn’t have a NIC or HBA for every occasion, and customers want and sometimes need to consider competitors.

Oh, and a little thing called COVID-19 has shown the world how foolish it is to go all out with a single supplier. In the face of geopolitical conflict, would Broadcom really tie VMware customers to a single supply chain?

The EK worries that selling VMware products only in bundles makes more sense because VMware – like many enterprise software vendors – packages its licenses with requirements to buy more stuff and/or increase spending over time. It is conceivable that some Symantec or CA goods could be bundled with VMware products and the resulting bundles contain some classes of software that customers could acquire from competing vendors.

Or VMware customers could just suck it up and put up with some shelfware. You wouldn’t be the first to do this.

I expect Broadcom will be fairly relieved at the EC’s stance on its investigation. The company has never stated that its acquisition of VMware is about fueling its hardware business, instead proposing to diversify to become a supplier for all of a company’s needs.

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

Broadcom has recently stated several times that it will not increase the prices for VMware products. This is necessary because Broadcom has increased fees on previous software acquisitions. But the EC is silent on this concern.

It is also silent about jobs that will certainly go.

The probe also obviously doesn’t take the future into account. I have previously argued that the Broadcom/VMware combo could result in a powerful integrated IoT stack. Perhaps the commission can get Broadcom to agree to a sweeping voluntary ban on exclusive bundling that will prevent such a stack from being uncompetitive.

Or maybe it will focus on NICs and Fiber Channel, which will prevent Broadcom from indulging in self-sabotage in these mostly sedentary markets.

The EC has set a deadline of May 11, 2023 to make a decision on whether to proceed with the transaction. The focus on hardware means, I believe, that Broadcom will make concessions that won’t hurt it in the slightest in order to close the deal.

And in the meantime, Broadcom needs to sort out the UK and US investigations into the acquisition. ®

https://www.theregister.com/2022/12/21/european_comission_vmware_broadcom_investigation/ EU investigates Broadcom/VMware deal over hardware impact • The Register

Rick Schindler

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