October 05, 2009, 3:20 PM — Brocade has reportedly put itself up for sale, a development that portends significant consolidation within the data center IT industry.
According to the Wall Street Journal, Brocade has enlisted Qatalyst Group to shop the company around. Likely suitors are HP and Oracle, among others, the WSJ reports.
HP, Oracle and Brocade all declined comment for the WSJ story. Brocade, which told Network World it does not comment on "rumor or speculation," has a market cap of $3 billion.
HP would be interested in Brocade to fill out its data center switching and storage-area network (SAN) portfolio as it battles former ally Cisco for next-generation data center buildouts. HP resold Cisco routers and switches for years before ramping R&D in its own ProCurve line.
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Cisco countered by developing a data center blade server system to compete with HP's and IBM's offerings. IBM is also a reseller of Cisco switches and routers but recently agreed to OEM Brocade's equipment, which it obtained from its acquisition of Cisco rival Foundry Networks.
HP resells Brocade FibreChannel and FibreChannel-over-Ethernet (FCoE) SAN switches under an OEM arrangement but is challenged in offering a complete data center switching line via its internally developed ProCurve brand. Acquiring Brocade would fill out both its LAN and SAN switching portfolios for the data center, observers note.
Similarly, software giant Oracle would become a more complete player in the data center with a Brocade acquisition. Oracle is in the process of acquiring Sun Microsystems for more than $7 billion, which gives it server hardware and software; Brocade would give Oracle LAN and SAN switching hardware and make the company a powerful provider of hardware as well as software.
But some analysts say Brocade would be a stretch for Oracle, and perhaps too disruptive near term for HP.
"Much has to do with Oracle's long-term growth plans," states Oppenheimer & Co. analyst Ittai Kidron in a bulletin on the Brocade speculation. "If the company truly plans to become a systems company (one-stop shop software/hardware), then Brocade would be a nice fit, especially including Sun Microsystems with no overlap. We're a bit in the dark on strategy here.
On HP, Kidron writes: "Brocade would add the missing data center switch architecture as well as a strong presence in the SAN switch market. That said, there would be massive overlap with HP's ProCurve networking unit, which we believe would be disruptive. Also, IBM and EMC are 10% customers for Brocade and could be lost as customers (along with HP's 10% business of Brocade)."
If HP acquired Brocade, business from IBM and others could swing back to Cisco, according to UBS analysts Nikos Theodosopoulos.
A dark horse in the Brocade stakes would be Juniper, according to investment firm UBS. Juniper and IBM are tightly aligned in data center and cloud computing, and a Brocade acquisition would flesh out much of what’s missing in the IBM/Juniper data center arsenal -- specifically, an FCoE line of switches.
"We believe Juniper may be another potential buyer of Brocade, although recent commentary from Juniper suggests it is not looking at large deals now," UBS analyst Theodosopoulos states in a bulletin on the prospects of a Brocade acquisition. "An acquisition of Brocade would make sense for Juniper, in our view, because it is the only other clear networking partner for IBM, while IBM is currently supporting Juniper's development of an FCoE switch, alleviating some of the R&D budgetary constraints on Juniper as it pursues both LTE & FCoE technologies."
Juniper has a major announcement slated for Oct. 28 in New York. Speculation has it the company will flesh out its Project Stratus cloud computing strategy and/or announce a significant alliance or acquisition with a major IT player.
IBM may also be interested in Brocade but that would dash its Juniper partnership, kill HP and EMC as 10% revenue customers, and get IBM back in the network and SAN hardware business which may not appeal to the company, Kidron notes.
