Broadcom buying CA, Brilliant or a Brain buster?
For some in the IT industry as well as financial markets, there is skepticism about Broadcom (formerly known as Avago) making an announcing that they are buying CA Technologies (CA) for USD 18.9 Billion (cash). For example, the Broadcom stock ( AVGO) took a significant negative hit (13%) on the news.
Broadcom Stock upon announcing buying CA (via Google)
Why the backlash over buying CA? a couple of reasons, CA is not exactly the most loved software vendor by customers in the industry, and, Broadcom (Avago) has been traditionally focused on hardware.
However, to understand this better, lets take a step back.
After digesting the likes of Broadcom, Brocade, and LSI among others, as well as after failing to capture Qualcomm in a USD 117 Billion takeover attempt, Avago (e.g., Broadcom) has set its sights on Mainframe and legacy enterprise software vendor Computer Technologies (CA) formerly known as Computer Associates. CA has about USD 4.2 Billion in annual revenue with about two-thirds tied to legacy IBM mainframe software, and the rest in other enterprise software. While not a growth segment, the IBM mainframe software business is a good annuity revenue and margin stream.
Data Infrastructures support IT business applications
Broadcom had 2017 revenues of about USD 17.6 Billion made up of a diverse product set including data infrastructure hardware along with associated software spanning legacy to new and emerging cloud environments. Some of Broadcom technologies include server I/O devices such as PCIe, SAS, SATA and NVMe adapters, RAID controllers and chips, Fibre Channel, NVMe over Fabric (NVMeoF), Ethernet, switches and much more.
Broadcom and CA, Brainbuster or Brilliant?
This deal is a bit of a head-scratcher or brainbuster on the surface as Broadcom aka Avago has been primarily a hardware company (they do have a portfolio of drivers, management tools, monitoring and other software) and I can understand them wanting to get more into the software business.
Avago (excuse me, Broadcom) has had a focus on leaning out acquisitions to drive volume and integration across its portfolio, bringing value to its partners and customers. For its part, CA has been known where old (or new) software goes to die or retire garnering CA reputations as a software retirement home, or undertaker for technology. Refer to the Broadcom SEC filing for more information here.
On the other hand, CA has made a successful business wringing our value from existing software as opposed to substantial investment in new development; they do do some new development.
Perhaps this is the risk and reward that Avago sees, where similar to themselves of wringing out value from existing hardware, maybe they will do the same with CA, however, taking it to a new level. If that is the game, then once CA is bought by Broadcom, who will they pursue from a software acquisition target list similar to what Avago has done with hardware?
Learn more about Broadcom (Avago), CA and data infrastructures related topics via the following links:
Additional learning experiences along with common questions (and answers), as well as tips can be found in Software Defined Data Infrastructure Essentials book.
For now, Broadcom buying CA is a brainbuster, especially on the surface. However, there could be a brilliant move if Broadcom can leverage CA to do what it has done in the past. That is, similar to Avago buying various companies and leaning them out; CA has done similar with both boosting recurring revenues and increasing market footprint. Also, the combined companies can also leverage their reach into various partner ecosystems as keep in mind, hardware needs software, software needs hardware, and Broadcom is now a supplier of both.
It will be interesting to see how much Broadcom leans out CA, perhaps the lessons from buying Brocade might help as opposed to previous purchases. My point is that Brocade solutions are higher up the data infrastructure technology stack than traditional Broadcom, Avago, LSI components that require more direct customer-facing sales and marketing.
CA for its part also relies on direct customer-facing sales and marketing, however, is their room or opportunity for leaning things out?
Something else interesting to watch is how much Broadcom allows CA to operate on its own, vs. more under the direct Broadcom umbrella.
Then there is the question of to sustain growth, does Broadcom and CA go on additional shopping sprees for undervalued software companies and whom would those be? Perhaps some of the legacy big vendors such as Cisco, Dell Technologies, HPE, IBM, Oracle among others might be interested in selling off some under performing software.
On the other hand, perhaps there are some opportunities for Broadcom and CA to do some buy out deals with private equity firms?
Keep in mind that over the past few years, several software business units have been divested from the likes of the combined Dell and EMC, HPE among others.
For now, I’m sticking with Broadcom buying CA as a brainbuster, however, see some interesting scenarios in the future.
Ok, nuff said, for now.
Cheers Gs
Greg Schulz – Microsoft MVP Cloud and Data Center Management, VMware vExpert 2010-2018. Author of Software Defined Data Infrastructure Essentials (CRC Press), as well as Cloud and Virtual Data Storage Networking (CRC Press), The Green and Virtual Data Center (CRC Press), Resilient Storage Networks (Elsevier) and twitter @storageio. Courteous comments are welcome for consideration. First published on https://storageioblog.com any reproduction in whole, in part, with changes to content, without source attribution under title or without permission is forbidden.
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