The European Commission has opened an in-depth investigation into the proposed $61bn acquisition of VMware by Broadcom, one of the largest semiconductor deals.
The Commission says it is particularly concerned that the transaction would allow Broadcom to restrict competition in the market for certain hardware components which interoperate with VMware’s software.
A delay in the deal could impact on the closure of the deal, especially at the record price during the semiconductor downturn. The Commission may require certain parts of the business to be spun out, which would impact on Broadcom’s semiconductor and software design and development sites across Europe.
As well as semiconductors, Broadcom makes Network Interface Cards (NICs), Fibre Channel Host-Bus Adapters (FC HBAs) and storage adapters after buying LSI Logic.
VMware, formerly Dell-EMC, was led by Pat Gelsinger for a decade before he took over as CEO of Intel. It offers virtualisation software which interoperates with a wide range of hardware, including NICs, FC HBAs and storage adapters.
“Our initial investigation has shown that it is essential for hardware components in servers to interoperate with VMware’s software. We are concerned that after the merger, Broadcom could prevent its hardware rivals to interoperate with VMware’s server virtualisation software. This would lead to higher prices, lower quality and less innovation for customers and consumers,” said Margrethe Vestager, Executive Vice-President in charge of competition policy.
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 degrading interoperability between VMware’s server virtualisation software and competitors’ hardware to the benefit of its own hardware. It could also prevent competitors from using VMware’s server virtualisation software or degrading their access to it.
This could lead to higher prices, lower quality and less innovation for business customers, and ultimately consumers.
The Commission will also look at VMware’s Project Monterey with three SmartNICs sellers: Nvidia, Intel and AMD Pensando, all of whom compete with Broadcom. The deal could see Broadcom decrease VMware’s involvement in Project Monterey to protect its own NICs revenues.
It is also concerned that Broadcom may also start bundling VMware’s virtualisation software with its own mainframe and security software from Computer Associates and Symantec and no longer offer VMware’s virtualisation software as a stand-alone product, reducing choice.
The Commission has until 11 May 2023, to take a decision.