European Commission Sends Broadcom Statement of Objections over Proposed Acquisition of VMware

The European Commission has informed Broadcom, Inc. of its preliminary view that its proposed acquisition of VMware, Inc. may restrict competition in the market for certain hardware components which interoperate with VMware’s virtualisation software.

Broadcom is a hardware company that offers, among other products, NICs, FC HBAs and storage adapters. Broadcom is the leading supplier of such products WW. It has recently started expanding into software markets, mainly for security and mainframe applications. VMware is the global leading supplier of server virtualisation software in the on-premises and private cloud environments which interoperates with a range of hardware, including FC HBAs and storage adapters. The companies’ portfolios are largely complementary.

Statement of Objections
In December 2022, the Commission opened an in-depth investigation to assess if Broadcom’s acquisition of VMware may restrict competition in the market for the supply of NICs, FC HBAs and storage adapters. In addition, the Commission had concerns that Broadcom may: (i) hinder the development of SmartNICs by other providers, and (ii) start bundling VMware’s virtualisation software with its own software and no longer offer VMware’s virtualisation software as a stand-alone product.

The Commission has conducted a wide-ranging investigation to understand the market and the potential impact of the deal. This investigation has included, among others, analysing internal documents provided by the parties and gathering views from server users and manufacturers, as well as from virtualisation software suppliers.

As a result of this in-depth investigation, the Commission is concerned that Broadcom may restrict competition in the global markets for the supply of FC HBAs and storage adapters by foreclosing competitors’ hardware by delaying or degrading their access to VMware’s server virtualisation software.

Broadcom is the leading supplier of FC HBAs and storage adapters. The markets are very concentrated. If the competitors of Broadcom are hampered in their ability to compete in these markets, this could in turn lead to higher prices, lower quality and less innovation for business customers, and ultimately consumers.

Companies and products
Broadcom is a US-based hardware company active in the production of NICs, FC HBAs and storage adapters, amongst other products. NICs are server components that provide an interface between the server and other computers and equipment on a network. FC HBAs are storage adapters that connect servers to storage located outside the server on a SAN using the fiber channel protocol, typically through a switch. Storage adapters connect servers’ central processing units to storage directly.

VMware is a US-based software company that mainly offers virtualization software, which enables IT operators to create virtual versions of computer resources (e.g. hardware, OSs, storage devices, or network resources) known as VMs. This enables IT organizations to run more than one virtual system – and multiple OS and applications – on a single server at the same time.

Background
A Statement of Objections is a formal step in an investigation, where the Commission informs the companies concerned in writing of the objections raised against them. The sending of a Statement of Objections does not prejudge the outcome of the investigation. Broadcom now has the opportunity to reply to the Commission’s Statement of Objections, to consult the Commission’s case file and to request an oral hearing.

The transaction was notified to the Commission on November, 15, 2022. The Commission opened an in-depth investigation on December 20, 2022 and now has until June 21, 2023 to take a final decision.

It has the duty to assess mergers and acquisitions involving companies with a turnover above certain thresholds (see Article 1 of the Merger Regulation) and to prevent concentrations that would significantly impede effective competition in the European Economic Area or any substantial part of it.