Broadcom’s stock closed up 3.5% on Thursday, while VMware shares ended the day up 3.1%.
Broadcom’s purchase of VMware will help the company diversify away from its core business of designing and selling semiconductors into enterprise software, which can have larger margins. VMware’s products are used by enterprises to more efficiently run their own servers as well as cloud servers.
Broadcom is the most acquisitive semiconductor company and has strategically used mergers to fuel its growth in recent years. It previously purchased CA Technologies in 2018 for $18.9 billion and Symantec in 2019 for $10.7 billion.
But Broadcom had not made a large acquisition since 2019. In March, Broadcom CEO Hock Tan said the company had the “capacity to do a good-sized acquisition.”
Broadcom planned to purchase Qualcomm in 2018 for $117 billion before the deal was hampered by then-President Donald Trump, who cited national security concerns.
VMware spun off from Dell late last year in an effort to pay off debt. Dell originally acquired the company when it bought EMC in 2016. Michael Dell, founder and CEO of Dell, owns about 40% of VMware.
Earnings top expectations
Alongside the acquisition announcement, Broadcom also reported fiscal second-quarter results on Thursday that beat on the top and bottom line, while it provided upbeat guidance for the third quarter.
Broadcom posted quarterly adjusted earnings of $9.07 per share, well ahead of consensus estimates of $8.70 per share, according to analysts surveyed by Refinitiv. Revenue grew 23% year over year to $8.1 billion, higher than Wall Street’s expected $7.9 billion, according to Refinitiv.
The company gave a revenue outlook for the current quarter that sailed past consensus estimates, guiding for sales of about $8.4 billion. Analysts surveyed by Refinitiv were expecting revenue of just over $8 billion.
Tan said in a statement that Broadcom saw strength in its networking and server storage units during the second quarter. “We expect this momentum to continue into the third quarter,” he added.
— CNBC’s Annie Palmer contributed to this report.