Wall Street Nonplussed
Wall Street nonplussed Wall Street investors apparently werent thrilled with Brocade after hearing the news. Brocades stock price had dropped 19 percent by late afternoon Aug. 8 to $4.98 per share from Aug. 7s close of $6.14."This was actually a smart move," Asaro told eWEEK via e-mail. "They both needed to do something major to get them to the next level." Asaro said he sees good synergies in the deal. "McData typically does better at the high end in enterprise with its Director-class switches, and Brocade with lower end and midsize systems," Asaro said. "They have a much more complete portfolio now." It all comes down to execution, Asaro said. "Big mergers are always a challengeand they will eventually have to streamline and consolidate. If they can move forward without politics and in-fighting and use this to build momentum then it could be a major step forward," he said. Brian Babineau, the Palo Alto, Calif.-based storage analyst with Enterprise Strategy Group, agreed that "there are plenty of synergies, as these two companies are competitors; the goal for Brocade is to achieve cost-cutting initiatives without impacts on McDatas customers. "Also, Brocade has recently augmented its portfolio to include information management software, a reasonable diversification from the hardware plumbing known as fibre channel," Babineau told eWEEK. "Brocade needs to balance reinvesting the cost savings to its emerging business and dropping it to the bottom line. Wall Street will be appeased if Brocade cuts costs fast and returns a reasonable portion of these savings to investors." Mark Kelleher, an analyst with Canaccord Adams in Vancouver, B.C., said he didnt think synergies were a problem but said that McData has had a "difficult" market position for a long while. Even though consolidation seems to be a trend in the industry, he said, he questioned the timing and the premium Brocade is paying. Click here to read more about Brocade and McDatas switch upgrades. "McData has almost complete product and customer overlap, and was losing market share fairly rapidly to Brocade," Kelleher told MarketWatch. "Given another six months, the assets of McData likely could have been consolidated for significantly less cost to Brocade." Tom Buiocchini, Brocade vice president of marketing, told eWEEK that the bottom line is that "the acquisition will provide better offerings for our OEMs and our customers. "Weve had four record quarters in a row," Buiocchini said. "Our customers keep telling us: Go faster! Go farther! This transaction gives us a lot more fuel in the tank for us going forward. McData has a broad product line and a great service organization, and we think its a win-win situation all around, because well be able to go to market faster with better products." Next Page: Big cost savings expected.
However, Tony Asaro, senior analyst with the Enterprise Strategy Group in Milford, Mass., was a bit more bullish on the transactions potential.