Zeus Kerravala
Zeus Kerravala is the founder and principal analyst with ZK Research. Kerravala provides a mix of tactical advice to help his...
Read Full Bio >>

Zeus Kerravala | July 12, 2018 |


Broadcom's Purchase of CA Is One 'Hock' of a Strange Deal

Broadcom's Purchase of CA Is One 'Hock' of a Strange Deal In my time as an analyst, I have seen some strange acquisitions… but this is the Michael Jordan of weird deals.

In my time as an analyst, I have seen some strange acquisitions… but this is the Michael Jordan of weird deals.

This week chip vendor Broadcom surprised the industry when it announced its intent to acquire enterprise software vendor CA Technologies for $18.9 billion, a purchase price representing about a 20% premium over CA's current stock price. Over the past several years, Broadcom's business and stock price has seen steady growth, as it has purchased rival companies such as Brocade, NetLogic Microsystems, and Silicon Spice.

On the surface, the acquisition of CA is certainly as strange as Arianna Grande dating Pete Davidson -- meaning there's nothing in common between the two. Broadcom makes silicon and has never had any desire to extend into other direct-to-end user markets. Its recent acquisition of Brocade is a good indicator of this. The company purchased Brocade, kept the storage business, which is primarily sold through OEM channels, and then practically gave the Ethernet switch business to Extreme Networks. CA is a pure software company that sells infrastructure management. Half of its current revenue comes from mainframe management, a business that has very little growth opportunity but isn't likely to decline either.

On a conference call with investors, Hock Tan, Broadcom CEO and president, justified the purchase by describing CA as a leading infrastructure technology company. Given its position as the market leader in managing mainframes and other legacy equipment, this could be one description. The other way to look at CA is as a tired software company that is in dire need of a refreshed portfolio. Apparently, this did nothing to convince investors, as Broadcom stock got hit hard, getting cut by about 15%. The Street's founder, Jim Cramer, called the purchase "the antithesis of a semiconductor deal," and noted that if the company was going to make a move into software it should have looked at something like VMware.

The inability of CA, BMC, and the other legacy management vendors to meet the needs of businesses that are becoming increasingly dynamic and distributed is why there are so many infrastructure management startups. For example, CA is an OK application performance management vendor, but AppDynamics (now owned by Cisco), Dynatrace, and New Relic are better. The access management market is filled with small vendors such as Okta, Centrify, and OneLogin. The network management space is filled with startups like LiveAction, ExtraHop, and Nyansa, as well as established suppliers like NetScout and Riverbed.


Examining the Possibilities
So, what's Broadcom's strategic rationale for buying CA? Only time will tell, but clearly the move into software is a new direction for the company whose $110 billion takeover bid of chip maker Qualcomm was squashed by President Trump earlier this year because of national security concerns. There is only so much silicon to buy, and my assumption is that Hock had to look at other markets for growth. Given CA's massive install base and broad product portfolio, one could argue that it's undervalued and with the right management, the company can be turned around and become a leader in many of the emerging management markets such as multi-cloud, containers, and DevOps.

Another possibility for Broadcom is that it uses the CA installed base to build stronger relationships with large enterprises to drive its core business. This seems unlikely though, as there really isn't any synergy between CA and Broadcom. Products, buyers, and channel are all completely different, so there's no 1+1 = 3 here for the two companies.

The most likely scenario is that Broadcom uses this to buy other tired enterprise infrastructure vendors with bloated cost structures and acts much like a private equity firm. With CA, while the mainframe business isn't growing, it isn't going away anytime soon and can be milked for a long time.

In this case Broadcom can cut, slash, and burn any business that isn't profitable and squeeze as much money as it can out of the company for as long as it can. It's unclear what the exit strategy would be here as the market for mainframe management vendors is obviously limited but it can make a lot of money from that business in the near to mid-term. If Broadcom were looking to complement CA, BMC would make a nice addition. BMC's current CEO is Peter Leav, who is popular in this industry from the work he did at Polycom putting the company in a position to be taken over by a private equity firm.

In my time as an analyst, I have seen some strange acquisitions... but this is the Michael Jordan of weird deals. Hock can try and paint this any way he wants, but the two product lines are so distant that there are no commercial synergies. We might be seeing the start of Broadcom the private equity firm, but that's certainly nothing for investors or customers to get excited about.

Related content:

Follow Zeus Kerravala on Twitter!


September 26, 2018

Join Kevin Kieller, Microsoft UC&C expert, along with Ribbon Communications and Polycom, for an update on Microsoft Ignite, and a focus on critical things you need to know about your voice deployme

August 29, 2018

Moving your voice services to the cloud introduces new challenges for 9-1-1 services. These include the need to serve multiple locations, and the increased mobility that comes with having a phone t

August 8, 2018

Artificial intelligence (AI) is becoming a reality for your contact center. But to turn the promise of AI into practical reality, there are a couple of prerequisites: Moving to the cloud and integr

March 12, 2018
An effective E-911 implementation doesn't just happen; it takes a solid strategy. Tune in for tips from IT expert Irwin Lazar, of Nemertes Research.
March 9, 2018
IT consultant Steve Leaden lays out the whys and how-tos of getting the green light for your convergence strategy.
March 7, 2018
In advance of his speech tech tutorial at EC18, communications analyst Jon Arnold explores what voice means in a post-PBX world.
February 28, 2018
Voice engagement isn't about a simple phone call any longer, but rather a conversational experience that crosses from one channel to the next, as Daniel Hong, a VP and research director with Forrester....
February 16, 2018
What trends and technologies should you be up on for your contact center? Sheila McGee-Smith, Contact Center & Customer Experience track chair for Enterprise Connect 2018, gives us the lowdown.
February 9, 2018
Melanie Turek, VP of connected work research at Frost & Sullivan, walks us through key components -- and sticking points -- of customer-oriented digital transformation projects.
February 2, 2018
UC consultant Marty Parker has crunched lots of numbers evaluating UC options; tune in for what he's learned and tips for your own analysis.
January 26, 2018
Don't miss out on the fun! Organizer Alan Quayle shares details of his pre-Enterprise Connect hackathon, TADHack-mini '18, showcasing programmable communications.
December 20, 2017
Kevin Kieller, partner with enableUC, provides advice on how to move forward with your Skype for Business and Teams deployments.
December 20, 2017
Zeus Kerravala, principal analyst with ZK Research, shares his perspective on artificial intelligence and the future of team collaboration.
December 20, 2017
Delanda Coleman, Microsoft senior marketing manager, explains the Teams vision and shares use case examples.
November 30, 2017
With a ruling on the FCC's proposed order to dismantle the Open Internet Order expected this month, communications technology attorney Martha Buyer walks us through what's at stake.
October 23, 2017
Wondering which Office 365 collaboration tool to use when? Get quick pointers from CBT Nuggets instructor Simona Millham.
September 22, 2017
In this podcast, we explore the future of work with Robert Brown, AVP of the Cognizant Center for the Future of Work, who helps us answer the question, "What do we do when machines do everything?"
September 8, 2017
Greg Collins, a technology analyst and strategist with Exact Ventures, delivers a status report on 5G implementation plans and tells enterprises why they shouldn't wait to move ahead on potential use ....
August 25, 2017
Find out what business considerations are driving the SIP trunking market today, and learn a bit about how satisfied enterprises are with their providers. We talk with John Malone, president of The Ea....
August 16, 2017
World Vision U.S. is finding lots of goodness in RingCentral's cloud communications service, but as Randy Boyd, infrastructure architect at the global humanitarian nonprofit, tells us, he and his team....
August 11, 2017
Alicia Gee, director of unified communications at Sutter Physician Services, oversees the technical team supporting a 1,000-agent contact center running on Genesys PureConnect. She catches us up on th....
August 4, 2017
Andrew Prokop, communications evangelist with Arrow Systems Integration, has lately been working on integrating enterprise communications into Internet of Things ecosystems. He shares examples and off....
July 27, 2017
Industry watcher Elka Popova, a Frost & Sullivan program director, shares her perspective on this acquisition, discussing Mitel's market positioning, why the move makes sense, and more.
July 14, 2017
Lantre Barr, founder and CEO of Blacc Spot Media, urges any enterprise that's been on the fence about integrating real-time communications into business workflows to jump off and get started. Tune and....
June 28, 2017
Communications expert Tsahi Levent-Levi, author of the popular blog, keeps a running tally and comprehensive overview of communications platform-as-a-service offerings in his "Choosing a W....
June 9, 2017
If you think telecom expense management applies to nothing more than business phone lines, think again. Hyoun Park, founder and principal investigator with technology advisory Amalgam Insights, tells ....
June 2, 2017
Enterprises strategizing on mobility today, including for internal collaboration, don't have the luxury of learning as they go. Tony Rizzo, enterprise mobility specialist with Blue Hill Research, expl....
May 24, 2017
Mark Winther, head of IDC's global telecom consulting practice, gives us his take on how CPaaS providers evolve beyond the basic building blocks and address maturing enterprise needs.
May 18, 2017
Diane Myers, senior research director at IHS Markit, walks us through her 2017 UC-as-a-service report... and shares what might be to come in 2018.
April 28, 2017
Change isn't easy, but it is necessary. Tune in for advice and perspective from Zeus Kerravala, co-author of a "Digital Transformation for Dummies" special edition.
April 20, 2017
Robin Gareiss, president of Nemertes Research, shares insight gleaned from the firm's 12th annual UCC Total Cost of Operations study.
March 23, 2017
Tim Banting, of Current Analysis, gives us a peek into what the next three years will bring in advance of his Enterprise Connect session exploring the question: Will there be a new model for enterpris....
March 15, 2017
Andrew Prokop, communications evangelist with Arrow Systems Integration, discusses the evolving role of the all-important session border controller.
March 9, 2017
Organizer Alan Quayle gives us the lowdown on programmable communications and all you need to know about participating in this pre-Enterprise Connect hackathon.
March 3, 2017
From protecting against new vulnerabilities to keeping security assessments up to date, security consultant Mark Collier shares tips on how best to protect your UC systems.
February 24, 2017
UC analyst Blair Pleasant sorts through the myriad cloud architectural models underlying UCaaS and CCaaS offerings, and explains why knowing the differences matter.
February 17, 2017
From the most basics of basics to the hidden gotchas, UC consultant Melissa Swartz helps demystify the complex world of SIP trunking.
February 7, 2017
UC&C consultant Kevin Kieller, a partner at enableUC, shares pointers for making the right architectural choices for your Skype for Business deployment.
February 1, 2017
Elka Popova, a Frost & Sullivan program director, shares a status report on the UCaaS market today and offers her perspective on what large enterprises need before committing to UC in the cloud.
January 26, 2017
Andrew Davis, co-founder of Wainhouse Research and chair of the Video track at Enterprise Connect 2017, sorts through the myriad cloud video service options and shares how to tell if your choice is en....
January 23, 2017
Sheila McGee-Smith, Contact Center/Customer Experience track chair for Enterprise Connect 2017, tells us what we need to know about the role cloud software is playing in contact centers today.