Broadcom-CA

Why Broadcom’s Acquisition of CA May Not Be as Strange as It Seems

In a move that baffled tech industry observers, Broadcom announced Wednesday that it plans to acquire CA Technologies in a deal worth $18.9 billion. On the surface, it seems like a profoundly strange acquisition. CA provides enterprise software and services, while Broadcom makes chips and software to enable developers to use them. But it’s possible that the deal could usher in a fresh chapter for both companies.

Broadcom’s announcement of the acquisition was notably vague about its plans for. The company said it will use the acquisition to propel itself forward in the “infrastructure software” segment but offered very little in the way of concrete detail about its roadmap beyond that. One clear opportunity for the newly joined company would be providing a combined software and hardware offering for enterprises to better take advantage of the internet of things.

IoT opportunity

A combined IoT offering would be a good use of CA’s emerging cloud and digital service portfolio and Broadcom’s business building sensors. Cloud vendors like Microsoft and Amazon Web Services are investing heavily in offerings that combine hardware with software but rely on chipmaker partnerships. With this deal, Broadcom is well-positioned to build services that are integrated from the sensor to the cloud.

Moving into the IoT and other emerging technology areas could put the combined firm on a path to take advantage of where enterprises will be going, not just where they are right now. It’s this business opportunity that seems to be the best possible outcome of the deal for both firms.

Business expansion

Broadcom highlighted that the deal will increase the company’s total addressable market and open it up to new business opportunities. This could make the chip company, which has a long history of acquisitions, more like Japan-based Softbank, a technology conglomerate with several disparate businesses.

The acquisition also provides Broadcom with a potential source of profit growth. By streamlining CA’s operations, the company could extract additional value from an already profitable business and boost its top and bottom lines. Of course, the challenge of integrating a large acquisition makes this a somewhat risky play.

But Broadcom has a history of successfully leveraging acquisitions. It was originally spun out of Hewlett-Packard as part of Agilent Technologies in 1999, and then was acquired by KKR and Silver Lake Partners in 2005 as Avago Technologies. It acquired a number of other companies and changed its name to Broadcom after acquiring Broadcom Computing in 2016.

Regulatory Implications

While the business and innovation case for the deal is important, regulatory impacts also likely played a key role in Broadcom’s decision making.

The news comes soon after U.S. regulators blocked Broadcom from buying Qualcomm in a deal worth $117 billion. Broadcom first unveiled its acquisition bid in November of last year but was blocked by President Trump in March with an executive order that focused on how Broadcom’s takeover of Qualcomm might hinder U.S. national security.

Because regulators might still stand in the way of Broadcom’s acquisition of another hardware maker, its purchase of CA makes more sense.

Enterprise risks

One of the biggest risks to enterprises currently engaged with CA is that they could face significant tumult as Broadcom seeks to improve the profits of the business it acquires.

CA’s mainframe software business, which makes up the largest portion of its revenue, seems like the least logical fit for Broadcom. Given the company’s history of divesting itself of businesses it previously acquired, it’s possible the mainframe software portion of CA or others will be sold to yet another company, further complicating the customer experience – but that likely won’t take place for a little while yet.

About the author

Blair Hanley Frank is a technology analyst covering cloud computing, application development modernization, AI, and the modern workplace.