I wouldn’t normally comment on acquisition stories, but in this case, well. Back in the day, CA Inc. (the company formerly known as Computer Associates) was acquisition maestro, first knocking several enterprise management competitors off the board, then building out its portfolio to obfuscate its mainframe-centric business models (and, perhaps, its dodgy business practices).
And now, the company is being bought by Broadcom, the “diversified global semiconductor leader” (a.k.a. chip manufacturer), this hot on the heels of its attempted, and blocked, acquisition of the more eligible and compatible Qualcomm. Many are asking why, and not in a good way: ten billion dollars have been wiped off Broadcom’s stock price, which is over half of the acquisition cost.
Few are seeing this as a good idea, though some are seeing an upside. Given that nobody has a crystal ball, I thought it might be worth summarising some of the reasons why a chip company and an enterprise software company might be the perfect match.
1. There’s got to be something in that portfolio. CA has 1,500 patents across a portfolio of 200 products (alert: CA’s directory is A-Z, when all start with C — and that’s just the ones they are listing). Surely, in there, will be something directly related to Broadcom’s business?
2. CA has lots of smart people. OK, not convinced? The future, as we keep being told, lies in software, not hardware — areas such as machine learning, analytics and so on. Within CA’s products are some pretty smart capabilities, along with the people who built them, and who can turn their skills to Broadcom’s needs.
3. It’s all about the mainframe money. Bullet four on the press release mentions ‘recurring revenue’ — that is, for all CA’s efforts to say otherwise, much of its business still comes from cash cow mainframe software. At $1.4 billion per year, that’s quite an offset to the $18B.
4. It’s all about Broadcom having too much money. Conversely, you know how it feels, you were about to start a relationship then you find you can’t, you’re knocking around with a hundred billion in your pocket and feeling low, then who should walk round the corner but…
5. It means someone else can’t acquire CA. Stranger things have happened — like how EMC’s acquisition of Documentum was rumoured to have taken place just to stop IBM from getting it.
6. Broadcom genuinely wants to diversify. This is plausible, if a little scary. I’m not saying hardware companies never ‘get’ software, nor that chip manufacturers have only had limited success outside of their core business, nor that even software companies don’t tend to understand the enterprise, but, OK, yes, I’m saying all those things. And it suggests chips ain’t where it’s at.
7. It really is a great match and everyone is stupid. This is a perfectly reasonable suggestion. After all, Broadcom will have done its technological and accounting due diligence, and found clear areas of alignment. Won’t it? And we’ve never seen that going completely wrong before, no sir. I can say that with complete autonomy.
8. There’s something deeply sneaky going on. Hang on, wait. Non-US company looks to buy US company, the deal gets blocked. So then the same non-US company goes to buy another US company in a completely different sphere. It surely wouldn’t do that just to gain a longer term foothold onto the territory, would it? No, too far fetched.
9. Well, there was this bottle of wine. Or a bet. You know the story, it was a chance meeting, then a drink, one thing led to another and then, well, the next thing they knew they were grinning at each other and signing some thing… or indeed, they were in the locker room, being all alpha, and one said, “So, you don’t believe it would work? Watch this!” Or something.
10. The world is about to change in a completely unexpected way. Little do we all know, but the biggest enterprises are on the brink of some fundamental, singularity-scale transformation, where the entire software stack collapses down into a self-orchestrating, massive distributed micro-kernel architecture that runs directly on the chip.
At which point, Broadcom wins the Information Age, all technological problems in the world are solved, and we can all go home. Thoughts?