Deal means instant credibility

By Chris Preimesberger  |  Posted 2008-07-22 Print this article Print

"This gives them [Brocade] instant credibility to say, 'We now know Ethernet. We brought this company on that's 12 years old, has however many millions of ports deployed, and has a good product,'" Bob Laliberte, storage/networking analyst at Enterprise Strategy Group, told me.

"They're also going to be able to say, for the first time: 'Hey, we are completely transport-agnostic. We're going to help you with your data center fabric, whether that fabric is Fibre Channel, Fibre Channel over Ethernet, iSCSI, or pure Ethernet.' "

The 451 Group, an IT research group, issued what it called an "M&A QuickTake" analysis of the deal and its likely effects on the IT market and on both companies. It was authored by the triumvirate of analysts Henry Baltazar (a former eWEEK Labs staff member), Brenon Daly and Steve Steinke.

The report said, in part:

"Brocade went out of its way ... to contrast this acquisition, which it says is focused on revenue growth, with the consolidation of McData, which was more about cost savings. Since that deal in August 2006, Brocade shares have tacked on about 35 percent in value, nearly three times the return of the Nasdaq market during the same period."
However, Wall Street's initial reaction to Brocade's new acquisition was bearish. Investors weren't overly excited about the transaction, trimming about 15 percent off Brocade's closing price in after-hours trading July 21.

The stock closed at $6.50 on July 22, down another $1.83 (about 22 percent) from the previous session. Foundry's stock price, on the other hand, was up 32 percent at about $18 per share on July 22.

Why the negative attitude toward Brocade here?
"When we look at this combination, we're tempted to call it a 'mini-Cisco,' as the newly expanded product portfolio at Brocade looks a lot like what the networking giant has been pitching," the 451 Group report said.

The Brocade-Foundry marriage faces a number of severe challenges, including how the combined company sells its gear and who actually buys it. The report continues:

"Brocade has always relied to a great extent on its OEM partners, with IBM, Hewlett-Packard, and EMC accounting for some two-thirds of the company's total revenue. On the other side, Foundry primarily takes in revenue through direct sales and its network of resellers. (We would also note Brocade could face difficulties in preserving its partnership with HP, given that Foundry's networking lineup competes fiercely with HP's ProCurve switches.)

"Another potential snag is the fact that Brocade and Foundry sell to very different end users within the enterprise. Brocade typically sells to storage and server IT staff, while Foundry caters more to network managers. In order to push a converged product, the combined Brocade-Foundry will have to navigate inter-office political boundaries to get approvals, a process that could prove difficult."


Chris Preimesberger Chris Preimesberger was named Editor-in-Chief of Features & Analysis at eWEEK in November 2011. Previously he served eWEEK as Senior Writer, covering a range of IT sectors that include data center systems, cloud computing, storage, virtualization, green IT, e-discovery and IT governance. His blog, Storage Station, is considered a go-to information source. Chris won a national Folio Award for magazine writing in November 2011 for a cover story on and CEO-founder Marc Benioff, and he has served as a judge for the SIIA Codie Awards since 2005. In previous IT journalism, Chris was a founding editor of both IT Manager's Journal and and was managing editor of Software Development magazine. His diverse resume also includes: sportswriter for the Los Angeles Daily News, covering NCAA and NBA basketball, television critic for the Palo Alto Times Tribune, and Sports Information Director at Stanford University. He has served as a correspondent for The Associated Press, covering Stanford and NCAA tournament basketball, since 1983. He has covered a number of major events, including the 1984 Democratic National Convention, a Presidential press conference at the White House in 1993, the Emmy Awards (three times), two Rose Bowls, the Fiesta Bowl, several NCAA men's and women's basketball tournaments, a Formula One Grand Prix auto race, a heavyweight boxing championship bout (Ali vs. Spinks, 1978), and the 1985 Super Bowl. A 1975 graduate of Pepperdine University in Malibu, Calif., Chris has won more than a dozen regional and national awards for his work. He and his wife, Rebecca, have four children and reside in Redwood City, Calif.Follow on Twitter: editingwhiz

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