Broadcom to Buy Networking Vendor Brocade for $5.9 Billion

The chip maker will integrate Brocade's SAN products into its portfolio, and look for a buyer for Brocade's IP networking business.

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Chip maker Broadcom is bulking up its capabilities in networking and storage with the $5.9 billion acquisition of networking equipment maker Brocade in a deal that comes two days after speculation about a possible acquisition first surfaced.

Executives for both companies announced the deal Nov. 2, saying that bringing Brocade into the fold will give Broadcom a broader portfolio of products that it can offer system makers. Broadcom is particularly focused on Brocade's products in the area of Fibre Channel storage-area network (SAN) switching. The company plans to sell Brocade's IP networking business, which includes wireless and campus networking, data center switching and routing and network software offerings.

The acquisition, which has been approved by Brocade's board of directors and Broadcom's executive committee, is expected to close in the middle of next year. The $5.9 billion includes $5.5 billion in cash and the assumption by Broadcom of $4 million in Brocade debt.

The deal will boost Broadcom's position in the enterprise storage connectivity space, according to President and CEO Hock Tan.

"With deep expertise in mission-critical storage networking, Brocade increases our ability to address the evolving needs of our OEM customers," Tan said in a statement.

The deal is the latest in a fast-changing semiconductor market that has seen several big-money acquisitions as vendors look to build out their capabilities to meet demands being driven by such emerging technologies as the cloud, the internet of things (IoT), software-defined data centers, mobility, autonomous vehicles, virtual reality and artificial intelligence (AI).

In networking, that includes such virtualization technologies as software-defined networking (SDN) and network-functions virtualization (NFV), while the storage industry is being roiled by the rise of software-defined storage (SDS). Broadcom, which sells such chips as the StrataXGS Trident and Tomahawk systems-on-a-chip (SoCs) for network switches, will be able to grow its presence in a space that is gaining more attention as businesses adopt hybrid cloud environments.

For its part, Brocade for several years has worked to build out its own product portfolio, including moving aggressively into the SDN space. The effort started when the vendor bought Vyatta in 2012. In addition, Brocade had expanded in such areas as Fibre Channel connectivity and networking analytics and monitoring, and the acquisition by Broadcom comes a few months after Brocade closed its $1.2 billion acquisition of wireless networking vendor Ruckus Wireless.

Being bought was not in Brocade's plans, according to CEO Lloyd Carney.

"Having just completed the Ruckus acquisition, we were confident in our strategy, our team and our path forward," Carney wrote in a post on the company blog. "We were not looking to sell the company. However, when Broadcom approached us with a compelling offer, we had an obligation to consider that offer, along with other alternative opportunities. After careful consideration, we concluded that Broadcom's offer was in the best interests of our company and its shareholders. Our goal is to continue to serve our customer and partner needs."

The vendor's SAN products will be a good complement to Broadcom's efforts in the area. As far as its IP networking business, Broadcom will sell that off "due to competitive overlap with some of Broadcom's most important customers," Carney wrote. "We have built an attractive IP Networking portfolio, designed to enable customers to transform their networks into platforms for innovation."

Broadcom officials expect Brocade's Fibre Channel SAN business to contribute about $900 million during the chip maker's fiscal year 2018. The deal is not conditional on the divesting of the IP networking business, the companies said.

Broadcom has been in the middle of the volatile chip industry. Avago Technologies—which was created in 2009 when it spun out of Agilent Technologies—has bought several companies, and last year bought Broadcom for $37 billion and then assumed the Broadcom name. Broadcom earlier this year sold its IoT business to Cypress Semiconductor for $550 million.

Other major deals in the semiconductor space include Qualcomm last week saying it is buying rival chip maker NXP Semiconductors for $47 billion—which comes a year after NXP acquired Freescale Semiconductor for about $12 billion. In addition, Intel spent $16.7 billion to buy programmable chip maker Altera, and Softbank is buying low-power chip design company ARM for $32 billion.