Brocade Takeover Could Create Cisco Rival
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According to a report in the Wall Street Journal today, networking vendor Brocade (NASDAQ: BRCD) is putting itself up for sale.
Word of the potential deal was met with little surprise from analysts contacted by InternetNews.com, who see continued networking industry consolidation in the months ahead. A potential sale of Brocade to IBM (NYSE: IBM), Dell (NASDAQ: DELL), HP (NYSE: HPQ) or Oracle (NASDAQ: ORCL) could also potentially shake up the networking market and create a new larger rival for industry giant Cisco (NASDAQ: CSCO).
For now, Brocade isn't saying much.
"At this point, our only comment for the record is that Brocade does not comment on rumors and speculation," Brocade spokesperson John Noh told InternetNews.com.
Analysts had plenty to say, however. The potential sale of Brocade to a large IT vendor is one that the analysts said makes sense for a number of reasons.
"When you look at the trends of virtualization, unified computing and cloud, we're clearly seeing a trend of having compute and networking stacks come together," Zeus Kerravala, senior vice president at Yankee Group, told InternetNews.com. "Brocade is in a unique position in that they are the market leader in storage networking, and I also think they are a technology leader in data networking. So if you're an HP, IBM, Oracle or someone that wants to have a roadmap toward unified computing, there are very few good acquisition candidates out there, and Brocade is probably the best."
IDC analyst Abner Germanow has a similar viewpoint on the attractiveness of Brocade to a potential acquirer. He said legacy notions of divisions between network, server and storage are eroding in the new era of increasing virtualization use. In his view, Brocade has a rich set of technologies that are attractive to the incumbent leaders in data center architectures.
Another reason why Brocade might be up for sale might have to do with its Foundy networking unit. Brocade acquired Foundry late last year for just under $3 billion. Earlier this year, Brocade rolled out its first post-acquisition Foundry networking gear, with new switching and application delivery platforms.
Analyst Nick Lippis of Lippis consulting sees the Foundry unit as one factor that could be driving a sale of Brocade.
"The one thing that I don't have a good handle on is how well Foundry has done inside of Brocade," Lippis said. "It's not clear how well they have been able to integrate and keep Foundry going."
Lippis added that he wasn't sure if Brocade is somehow panicking, or if the company is just looking for an opportunity.
"What's odd about this is that in our industry we usually don't float these ideas in such public ways," Lippis said. "Having something visibly out there to me talks to a strategy of trying to generate interest and get the price up."
As to who might acquire Brocade, Lippis said it makes sense for HP to try to round out its storage networking portfolio. It also would make sense for IBM to take an interest.
"IBM has increased their relationship with Brocade, so for them to all of a sudden see Brocade go away would not be in their best interest," Lippis said.
IBM and Brocade expanded their OEM agreement earlier this year in a deal that sees IBM rebranding and reselling Brocade equipment.
With a Brocade acquisition by IBM or HP, the market as a whole would be altered, with Cisco in particular facing new competition.
"I think Cisco would be a loser in this case," said Kerravala. "If you take a company like Brocade that has best-of-breed technology and you create a distribution channel for that technology with the size of an IBM or HP, and that's a much more significant competitor than what they've had in the past."