Quick Thoughts on Broadcom/SAS

The latest rumor: Broadcom will buy SAS.

Don’t say I didn’t warn you.

Wall Street seems to like the idea. Broadcom stock (trading under the AVGO ticker) closed up 6% for the day. That’s a vote of confidence.

The reaction of many: who the hell is Broadcom?

It makes a lot of sense for an industry outsider to buy SAS. Why? Because any established analytics vendor will have channel conflicts that diminish the value of the company. SAS GSI partners will abandon ship if IBM acquires the company. Same for Microsoft, Oracle, or SAP. SAS has always positioned itself as platform-agnostic, providing customers with tools that work on all platforms and with all databases.

Assuming that this deal is real — a hell of an assumption, but work with me here — what will Broadcom do with SAS?

First, kiss the rock collection and the goat farm goodbye.

Next, expect new leadership to take a hard squint at that bloated product portfolio. They will ask questions like how much revenue do we get from this product? and how many developers support this product? They will quickly discover that there are a few products with legs and many that — ahem — do not have legs.

The same rule applies to headcount more generally. Computer Associates employed 10,500 people before Broadcom acquired it in 2018. After the sale, Broadcom’s headcount rose by about 4,000. So, about 6,500 jobs disappeared, and CA wasn’t exactly bloated.

Those fancy offices in castles and manors? With reduced headcount, overlapping office space and the WFH trend, the few that remain open will be sold and leased back. More cash. If you’re still working for SAS, you’ll love WeWork.

Interesting question: will new leadership keep Viya and toss legacy SAS, or the opposite? Adoption of Viya is very low among SAS customers, while development and marketing costs are very high. The new boss just might decide to keep the legacy software, milk it for cash, and let it decline. Or they could sell off one or the other.

Here’s what Broadcom won’t do: leverage their strengths in chips to develop advanced AI appliances. SAS R&D has never done very much with hardware. The company was very late to the GPU game, and generally works with industry standard hardware from Intel or HPE.

So acquiring SAS does not provide Broadcom with the talent it needs to make a hardware-based AI play. That’s not to say they won’t try that play, just that acquiring SAS doesn’t help them.

Anyway, those are my first thoughts on this. Will be interesting to see if this deal goes through.

7 comments

  • Why would Broadcom want to pay such a hefty price $15-$20 BN for flat and declining revenues over the years. I wouldn’t put a valuation multiplier of more than 3X or 4X (being generous) with annual revenue of 3BN, making it 9 to 12 BN tops. Is Broadcom justifying that additional premium for acquiring prime real estate?

    • Broadcom will value the company based on earnings and cash flow AFTER they streamline the company. I agree that price looks steep. Hard to say what the real estate is worth — the WFH trend is killing commercial real estate.

  • Schabenbuggered

    Great to see you writing in the blog again! If he sold the company, whatever would happen to that spitting image of a young lady who works in Marketing (but has a different last name), and the others just like her?

    Since SAS loves “Data As Art” (they have “Data Artists”!), here’s a fun thought” – What if the “rock collection” were actually a “trophy collection”, with each “gem” representing a shagged female employee? Imagine them all together at a post-sale conference comparing notes. Is gem value correlated with lay quality? Who is which?

    Kind of fun to think about after encountering some of the aged and incompetent hotties that seem perpetually protected.

  • Schabenbuggered

    The whole thing turned out to be a big PR jerkoff.

    • Likely they’ve been in talks for some time, but Goodnight was on the fence. Broadcom leaked the story to find out if he’s serious

      • Schabenbuggered

        You are probably right. I believe that the company will only be sold in an Estate sale; there’s too much vanity and ego involved to do otherwise. In my opinion, this was nothing more than flirting for the Billionaire post-Viagra crowd; a way of checking to see if they’re still desirable and capable of landing a big score.

        There’s a book about Narcissism that includes a story that I believe predicts how this whole thing plays out. The story describes a Grandmother who cooked an ethnic dish that everyone loved. Others tried recipes for the dish, but could not replicate Grandma’s success. The family begged Grandma to share the recipe before she died and it was lost forever. Grandma enjoyed being the only person who could make such a tasty dish. However, Grandma promised to leave the family her secret recipe as part of her will. Grandma died, the will read, and the recipe. When family members made the dish, it didn’t taste the same; Grandma sabotaged the recipe, leaving out key ingredients and steps. Grandma so relished the attention her dish brought her, she kept the memory alive from beyond the grave. Although her family would never again enjoy the taste of that dish, the memory of how it tasted when Grandma cooked it would live on.

        I believe the same thing will happen here. Salvage value will approach zero, and the family (and employees) will be left with a big mess to sort out.

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