EU to investigate $61 billion VMware buyout proposed by Broadcom

(Image Courtesy: Reuters)

The European Union (EU) will carry out a investigation into the proposed acquisition of VMware by Broadcom. EU says the $61-billion deal can negatively impact competition in the market for network interface cards, fibre channel adapters and storage adapters.

Broadcom manufactures hardware related to server networks and storage, while VMware deals with software solutions that operate with a wide variety of hardware in the space.

"Broadcom, a major supplier of hardware components, is acquiring VMware, a key server virtualisation software provider. Our initial investigation has shown that it is essential for hardware components in servers to interoperate with VMware’s software," said Margrethe Vestager, Executive Vice-President in charge of competition policy.

"We are concerned that after the merger, Broadcom could prevent its hardware rivals to interoperate with VMware’s server virtualisation software," added Vestager.

EU is worried that Broadcom could potentially restrict competition by gimping operability for other manufacturers and reducing the scope of hardware that can connect to VMware's server software.

If the acquisition goes through, Broadcom can potentially limit VMware software to their hardware, which will make it difficult for new players to stay competitive. It can also degrade the experience on competitive hardware by limiting its utility with VMware.

"This, in turn, could lead to higher prices, lower quality and less innovation for business customers, and ultimately consumers," EU said in a press release.

It will also investigate if Broadcom can harm collaborative projects between VMware and other companies, citing Project Monterey, which is a collaboration between VMware and other network card manufacturers (Nvidia, AMD and Intel).

EU says Broadcom can interfere with the project and may decrease VMware's involvement with it, which, In turn, will harm innovation in the space. Broadcom can also start bundling VMware software with their own, no longer offering customers a choice to a stand-alone VMware product.