Broadcom Inc.

Overview Key strengths Key risks Considerable scale, industry leading margins across both semiconductor and software businesses, and strong free cash flow generation. Acquisition-driven growth strategy, resulting in frequent releveraging, with leverage likely to increase above 2x after VMWare acquisition. Robust and diverse semiconductor portfolio supplying data center, enterprise, and networking markets. Limited track record of managing large enterprise software businesses at aggressive margin profiles. A growing share of software revenue--accelerated by the announced acquisition of VMWare--could moderate operating performance cyclicality. Legacy semiconductor business remains cyclical and exposed to the inherent volatility of the industry. Before resolving the CreditWatch, we expect to conduct a detailed review of post-close business strategies, associated integration and restructuring charges, capital structure, and revisit the company?s

...The CreditWatch Positive outlook is based on our view that acquisition of VMware will expand Broadcom's software business and provide greater operating stability while it is able to keep pursuing acquisition and shareholder return initiatives. Before resolving the CreditWatch, we expect to conduct a detailed review of post-close business strategies, associated integration and restructuring charges, capital structure, and revisit the company's financial policy. If we do raise the rating, we do not expect it would be by more than one notch. We continue to expect the transaction to close in late 2023 as the company is awaiting regulatory approvals from U.S. and China, and we view the pending acquisition as the primary factor supporting our positive CreditWatch. The contribution of VMware's approximately $13.5 billion of revenue will continue Broadcom's transition to enterprise software, reducing its reliance on more volatile semiconductor sales. We estimate this transaction will increase the...

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