Broadcom stock fell while shares of VMware rocketed higher Monday amid reports that the chipmaker and enterprise software maker will merge.
Bloomberg on Sunday first reported negotiations between Broadcom and VMware. Broadcom is mulling a cash-and-stock offer of around $140 per share for VMware, making it a $60 billion deal potentially, according to the Wall Street Journal.
The news sent VMware stock soaring 24.8% to close at 119.43 on the stock market today. Broadcom stock dropped 3.1% to 526.36.
With the move, San Jose-based Broadcom would add to a growing list of software assets. It earlier diversified into software with the acquisitions of CA Technologies and Symantec's security division.
Dell Technologies spun off its majority stake in virtualization software maker VMware last year. As of Friday's market close, VMware had a market cap of about $40 billion. The company also owns cybersecurity assets.
VMware Stock: Solid Footing
"VMware is a cloud computing technology company with solid footing in the hybrid cloud market," Deutsche Bank analyst Ross Seymore said in a note to clients. "If talks are successful, we believe that such an acquisition would strengthen AVGO's position in the enterprise/infrastructure software market."
Cowen analyst Shaul Eyal in his note said: "While the transaction is speculated in unsubstantiated press reports and yet to potentially materialize, we would view it as providing an additional tailwind to an overall healthy cybersecurity industry whose multiples have greatly contracted in recent months."
At BMO Capital Markets, analyst Keith Bachman likes the deal from a VMware view.
"VMW has a long journey in continuing its transition to subscription revenues, which we think can lead to moderating revenue growth and a negative operating and free cash flow margin impact over the next few years," he said in a note. "In addition, we believe that VMW could have challenges in capturing new cloud-native workloads. Therefore, we think a deal with Broadcom could give VMW shareholders a way out."
He noted that VMW holds about $9 billion in net debt. VMware reports earnings on Thursday.
Broadcom Stock: Earnings Due
Fiscal second-quarter earnings for Broadcom stock are due June 2.
Broadcom makes wireless chips for smartphones. It also makes semiconductors for broadband communications, networking, storage and industrial applications.
Also, semiconductor products accounted for 73% of Broadcom's revenue in the second quarter. Infrastructure software contributed 27% of sales.
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Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
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