Tag Archives: Acquisition

Broadening Your Horizons, or Why Broadcom Won’t Get VMware

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You might have missed the news over the weekend that Broadcom is in talks to buy VMware. As of right now this news is still developing so there’s no way of knowing exactly what’s going to happen. But I’m going to throw my hat into the ring anyway. VMware is what Broadcom really wants and they’re not going to get it.

Let’s break some of this down.

Broad Street

Broadcom isn’t just one of the largest chip manufactures on the planet. Sure, they make networking hardware that goes into many of the products you buy. Yes, they do make components for mobile devices and access points and a whole host of other things, including the former Brocade fibre channel assets. So they make a lot of chips.

However, starting back in November 2018, Broadcom has been focused on software acquisitions. They purchased CA Technologies for $19 billion. They bought Symantec the next year for $10 billion. They’re trying to assemble a software arm to work along with their hardware aspirations. Seems kind of odd, doesn’t it?

Ask IBM how it feels to be the dominant player in mainframes. Or any other dominant player in a very empty market. It’s lonely and boring. And boring is the exact opposite of what investors want today. Mainframes and legacy computing may be the only thing keeping IBM running right now. And given that Broadcom’s proposed purchase of Qualcomm was blocked a few years ago you can see that Broadcom is likely at the limit of what they’re going to be able to do with chipsets.

Given the explosion of devices out there you’d think that a chip manufacturer would want to double and triple down on development, right? Especially given the ongoing chip shortage. However, you can only iterate on those chips so many times. There’s only so much you can squeeze before you run out of juice. Ask Intel and AMD. Or, better yet, see how they’ve acquired companies to diversify into things like FPGAs and ARM-based DPUs. They realize that CPUs alone aren’t going to drive growth. There have to be product lines that will keep the investor cash flowing in. And that doesn’t come from slow and steady business.

Exciting and New

VMware represents a huge potential business arena for Broadcom. They get to jump into the data center with both feet and drive hybrid cloud deployments. They can be a leader in the on-prem software market overnight with this purchase. Cloud migrations take time. Software needs to be refactored. And that means running it in your data center for a while until you can make it work in the cloud. You could even have software that is never migrated for technical or policy-based reasons.

However, that very issue is going to cause problems for VMware and Broadcom. Is there a growth market in the data center in an enterprise? Do you see companies adding new applications and resources to their existing enterprise data centers? Or do you see them migrating to the cloud first? Do you imagine given the choice between building more compute cluster in the existing hybrid data center or developing for the cloud the first time that companies are going to choose the former?

To me, the quandary of VMware isn’t that different from the one faced by IBM. Yes, you can develop new applications to run on mainframes or on-prem data centers. But you can also not do that too. Which means you have to persuade people to use your technology. Maybe it’s for ease-of-management for existing operations teams. Could be an existing relationship that allows you to execute faster. But no matter what choice you make you’re incurring some form of technical debt when you choose to use existing technology to do something that could also be accomplished with new ideas.

Know who else hates the idea of technical debt and slow steady growth? That’s right, investors. They want flashy year-over-year numbers every quarter to prove they’re right. They want to see that stock price climb so they can eventually sell it and invest in some other growth market. Gone are the days when people were proud to own a bit of company and see it prosper over time. Instead, investors have a vision that lasts about 90 days and is entirely focused on the bottom line. If you aren’t delivering growth you don’t have value. It’s not even about making money any more. You have to make more all the time.

The Broad Elephant

The two biggest shareholders of VMware would love to see it purchased for a ton of money. Given the current valuation north of $40 billion, Dell and Silver Lake would profit handsomely from a huge acquisition. That could be used to pay down even more debt and expand the market for Dell solutions. So they’re going to back it if the numbers look good.

The other side of this equation is the rest of the market that thinks Broadcom’s acquisition is a terrible idea. Twitter is filled with analysts and industry experts talking about how terrible this would be for VMware customers. Given that Symantec and CA haven’t really been making news recently would tend to lend credence to that assessment.

The elephant in the room is what happens when customers don’t want VMware to sell? Sure, if VMware is allowed to operate as an independent entity like it was during the EMC Federation days things are good. They’ll continue to offer support and make happy customers. However, there is always the chance something will change down the road and force the status quo to change. And that’s the thing no one wants to talk about. Does VMware reject a very good offer in favor of autonomy? They just got out from under the relationship with Dell Technologies that was odd to say the least. Do they really want to get snapped up right away?

Tom’s Take

My read on this is simple but likely too simple. Broadcom is going to make a big offer based on stock price so they can leverage equity. The market has already responded favorably to the rumors. Dell and Silver Lake will back the offer because they like the cash to change their leverage situation. Ultimately, regulators will step in and decide the deal. I’m betting the regulators will say “no” like they did with Qualcomm. When the numbers are this big there are lots of eyeballs on the deal.

Ultimately Broadcom may want VMware and the biggest partners may be on board with it. But I think we’re going to see it fall apart because the approvals will either take too long and the stock price will fall enough to make it no longer worth it or the regulators will just veto the deal outright. Either way we’re going to be analyzing this for months to come.

Extremely Hive Minded

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I must admit that I was wrong. After almost six years, I was mistake about who would end up buying Aerohive. You may recall back in 2013 I made a prediction that Aerohive would end up being bought by Dell. I recall it frequently because quite a few people still point out that post and wonder what if it’s happened yet.

Alas, June 26, 2019 is the date when I was finally proven wrong when Extreme Networks announced plans to purchase Aerohive for $4.45/share, which equates to around $272 million paid, which will be adjust for some cash on hand. Aerohive is the latest addition to the Extreme portfolio, which now includes pieces of Brocade, Avaya, Enterasys, and Motorola/Zebra.

Why did Extreme buy Aerohive? I know that several people in the industry told me they called this months ago, but that doesn’t explain the reasoning behind spending almost $300 million right before the end of the fiscal year. What was the draw that have Extreme buzzing about this particular company?

Flying Through The Clouds

The most apparent answer is HiveManager. Why? Because it’s really the only thing unique to Aerohive that Extreme really didn’t have already. Aerohive’s APs aren’t custom built. Aerohive’s switching line was rebadged from an ODM in order to meet the requirements to be included in Gartner’s Wired and Wireless Magic Quadrant. So the real draw was the software. The cloud management platform that Aerohive has pushed as their crown jewel for a number of years.

I’ll admit that HiveManager is a very nice piece of management software. It’s easy to use and has a lot of power behind the scenes. It’s also capable of being tuned for very specific vertical requirements, such as education. You can set up self-service portals and Private Pre-Shared Keys (PPSKs) fairly easily for your users. You can also build a lot of policy around the pieces of your network, both hardware and users. That’s a place to start your journey.

Why? Because Extreme is all about Automation! I talked to their team a few weeks ago and the story was all about building automation platforms. Extreme wants to have systems that are highly integrated and capable of doing things to make life easier for administrators. That means having the control pieces in place. And I’m not sure if what Extreme had already was in the same league as HiveManager. But I doubt Extreme has put as much effort into their software yet as Aerohive had invested in theirs over the past 8 years.

For Extreme to really build out the edge network of the future, they need to have a cloud-based management system that has easy policy creation and can be extended to include not only wireless access points but wired switches and other data center automation. If you look at what is happening with intent-based networking from other networking companies, you know how important policy definition is to the schema of your network going forward. In order to get that policy engine up and running quickly to feed the automation engine, Extreme made the call to buy it.

Part of the Colony

More importantly than the software piece, to me at least, is the people. Sure, you can have a bunch of people hacking away at code for a lot of hours to build something great. You can even choose to buy that something great from someone else and just start modifying it to your needs. Extreme knew that adapting HiveManager to fulfill the needs of their platform wasn’t going to be a walk in the park. So bringing the Aerohive team on board makes the most sense to me.

But it’s also important to realize who had a big hand in making the call. Abby Strong (@WiFi_Princess) is the VP of Product Marketing at Extreme. Before that she held the same role at Aerohive in some fashion for a number of years. She drove Aerohive to where they were before moving over to Extreme to do something similar.

When you’re building a team, how do you do it? Do you run out and find random people that you think are the best for the job and hope they gel quickly? Do you just throw darts at a stack of resumes and hope random chance favors your bold strategy? Or do you look at existing teams that work well together and can pull off amazing feats of technical talent with the right motivation? I’d say the third option is the most successful, wouldn’t you?

It’s not unheard of in the wireless industry for an entire team to move back and forth between companies. There’s a hospitality team that’s moved back and forth between Ruckus, Aerohive, and Ubiquiti. There are other teams, like some working on 802.11u, that bounced around a couple of times before they found a home. Which makes me wonder if Extreme bought Aerohive for HiveManager and ended up with the development team as a bonus? Or if they decided to buy the development team and got the software for “free”?

Tom’s Take

We all knew Aerohive was putting itself on the market. You don’t shed sales staff and middle management unless you’re making yourself a very attractive target for acquisition. I still held out hope that maybe Dell would come through for me and make my five-year-old prediction prescient. Instead, the right company snapped up Aerohive for next to nothing and will start in earnest integrating HiveManager into their stack in the coming months. I don’t know what the future plans for further integration look like, but the wireless world is buzzing right now and that should make life extremely sweet for the Aerohive team.