The Competition and Markets Authority (CMA) has said that Broadcom’s $61 billion deal to buy technology company VMware could “drive up” the cost of computer parts used by government, banks, and telecoms in the UK.

US-based business Broadcom makes and sells specialist hardware components, including network interface cards (NICs) and storage adaptors which are used in computer servers.

The customer base of VMware, which provides software products, currently includes major banks, telecoms companies, and UK government departments, as well as other public institutions.

An investigation by the regulator explored how the deal could impact the supply of these software and hardware products and whether this would give Broadcom the ability to "disadvantage its competitors".

The CMA said that VMware has a leading position in server virtualisation software and that compatibility with its software is critical for the server hardware components sold by Broadcom and its rivals.

Following the probe, the competition watchdog is concerned that the deal could enable Broadcom to harm its rivals by "preventing them from being able to supply VMware-compatible hardware components – such as NICs and storage adapters – reducing competition and ultimately choice for customers".

The investigation also revealed that the merger could lead Broadcom to obtain commercially sensitive information, like details about new planned products, that its hardware rivals currently supply to VMware.

“Servers are a vital building block, functioning largely thanks to hardware products made by firms like Broadcom, working in unison with virtualisation software from firms like VMware,” said David Stewart, executive director, CMA. “We are concerned this deal could allow Broadcom to cut out competitors from the supply of hardware components to the server market and lead to less innovation at a time when most firms want fast, responsive, and affordable IT systems.”

Broadcom now has five working days to put forward legally binding proposals to the CMA to address its concerns.

Following this, the CMA has a further five working days to consider whether the proposals successfully address its concerns. If they don't, the authority will refer the case to a Phase 2 investigation.

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