Brocade Sale to HP, Oracle or Other Player Would Make Sense: Analysts

 
 
By Jeffrey Burt  |  Posted 2009-10-05 Email Print this article Print
 
 
 
 
 
 
 

Analysts say selling networking vendor Brocade to a major player such as HP, Oracle, IBM, Cisco or Dell could make sense for the companies involved, particularly given the increasing competition around unified data center solutions, which require a networking element, according to analysts. Brocade, which reportedly has been put on the market, has terrific products but needs a better distribution channel, said one analyst. However, being bought one of the top-tier vendors could put other partnerships at risk.

It was just more than a year ago, in July 2008, that Brocade Communications Systems announced its $3 billion acquisition of Foundry Networks, a move designed to give Brocade a greater unified networking fabric offering for the data center.

Brocade had a strong history with Fibre Channel. Adding Foundry to the company would bring with it a solid Ethernet play. It would also give Brocade entr??«e into the emerging FCoE (Fibre Channel over Ethernet) space.

It was a smart move by a company looking to gain traction in the highly competitive enterprise networking space dominated by the likes of Cisco Systems, Juniper Networks and, more recently, Hewlett-Packard and its ProCurve business.

That's why David Passmore was surprised when he read Oct. 5 that Brocade may be shopping itself around.

"I was surprised by this just because the deal with Foundry was so recent, and I hadn't heard how the Foundry assimilation had been going," Passmore, an analyst with The Burton Group, said in an interview.

The Wall Street Journal reported Oct. 5 that Brocade executives have secretly been shopping the company around and that HP and Oracle are among the competitors interested in buying the networking vendor. Others whose names have surfaced in the media include Cisco, Dell and IBM.

The Wall Street Journal quoted unnamed sources saying that there no imminent deal on the horizon, and that Brocade executives could decide to take the company off the market.

Officials with Brocade and other vendors have declined to talk about Brocade being on the market or any possible deals.

Passmore said there could be a number of reasons why Brocade executives were willing to put the company up for sale. One could be simply that the owners saw this as an opportune time to sell, particularly given the push by major tech vendors toward offering more unified data center solutions that include compute, storage, networking and management software.

Cisco has expanded its presence in the data center with its Unified Computing System, an all-in-one offering that marks Cisco's entrance into the server market. HP has been more closely tying its ProCurve products with its ProLiant servers, and IBM in July expanded the partnerships with various networking vendors, including Brocade.

Officials with Dell announced Sept. 1 that the company was entering the unified data center fray, thanks in large part to expanded partnerships with Brocade and software vendor Scalent Systems.

Then there's Oracle, which is in the process of buying Sun Microsystems for $7.4 billion. Oracle executives have been vocal about their desire to keep Sun's hardware business intact, and to offer a unified data center solution, Oracle would need a networking component.

"It's possible that Brocade sees that if they don't hook up with one of the major players, they'd get squeezed out," Passmore said, pointing to the expected consolidation in the networking space. "They don't want to be the last of the little guys left after all the big guys fill their dance cards."

Zeus Kerravala, an analyst with Yankee Group, said Brocade has always had among the best products. The company's Achilles' Heel has been more around distribution.

In the storage networking space, being sold to a major player could boomerang on the company, Kerravala said in an interview. It already has partnerships with the top storage vendors, including EMC, HP and Hitachi. If one of those companies were to buy Brocade, it would damage any business relationship Brocade has with the other vendors.

However, on the data center side, the attraction for Brocade would be to find a company that could market and sell the products better than Brocade could. Even with the high quality of products, Brocade had a small percentage of an $18 billion to $20 billion networking market, Kerravala said. Brocade in 2008 had $167 million in profit from about $1.5 billion in revenue.

"If you can take great technology and marry it to a company that has great distribution skills, how big could this be?" he said.

 
 
 
 
 
 
 
 
 
 
 

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