Brocade – The big ticket item
It’s all over the Internet – Brocade is ready to get sold to the highest bidder. The Wall Street Journal reported Monday that Brocade has approached a banker to find the highest bidder for it.
Looking at its competitors the following just appear as contenders right away -
- IBM
- Cisco
- EMC
- HP
- Dell
- Oracle
All of them definitely would wish to buy Brocade from a business value perspective but only a few desperately need it. Let’s analyze the factors as to why Brocade would want to get sold first. It’s not anyone wants to be sold after having performed a major acquisition – Foundry Networks.
Brocade offers a strong product line so it’s not that it is losing its share of the market or is underperforming. It’s just that the market is down so there is not a major rush for Brocade products. And that’s perfectly fine.. So no reason to panic here. Why would Brocade not stick around for another year and receive an increased share price for itself.
Analyzing Brocade’s share price – it has hovered around $8 on average for past 5 years. That means being part of an acquisition at this time will take its value higher and eventually get to play a major role as a capability enhancer. The market has bottomed out and there is no real scope for Brocade price to go any lower. Keeping this in mind, the winning share price offered for Brocade will have to be higher than $12 price range if there is a competitive bid.
Brocade may no longer find it financially sound to invest into research for its new products by itself. So it may want to leverage that role through its new rich owner. Talking about owners, it’s about time that we discuss who could be the prospective buyer.
IBM – Huge interests, OEM partnerships that align with Brocade, server business that rivals competitors, and can just take Brocade to another level. But IBM has internal red tape issues that do not offer immense growth for Brocade. If it’s just money that they end up talking about, however, IBM will be on the top.
HP – Another major player that has a lot of hardware depending on Brocade. HP sells Brocade solutions to almost everyone that would have a use for Brocade products and these products have worked in a stable manner for years in customer environments. HP would also look to enhance the use of this product for its blade infrastructure and probably just embed SAN switches into the hardware. It may also want to take some of the foundry switches and sell them directly to medium and large businesses. Most importantly, it will give HP an edge against its competitors.
Dell – Does not make a huge difference to them but they would sure want to expand their business area. Dell currently works a lot with EMC in sourcing switches etc., but wouldn’t it be good to have your own solution. Besides, they recently acquired Perot Systems so i doubt they would be willing to make another major acquisition so soon.
CISCO – Would not win regulatory approvals since it would be intent on just quietly killing its competitor and sell own products instead. That would mean use the technology of brocade but don’t just use their products anymore. Another way they can get it is buy through EMC. There is one hidden intent though that’s explored in the next step.
EMC – Would definitely be interested to buy Brocade since it makes huge sense. Now for the surprising but not very well known news and could be the reason Brocade is willing to sell itself off to the highest bidder. Infoworld reported on September 1, 2009 that CISCO & EMC might be starting a new joint venture company (http://www.infoworld.com/d/hardware/cisco-emc-starting-new-joint-venture-company-093?source=rss_infoworld_news).
I have a strong feeling that the selloff of Brocade has something to do with it. EMC and CISCO might have been sending feelers to the top executives at Brocade or Brocade must have thought of this as a good opportunity. Regardless, if Brocade goes to EMC/CISCO it would be a HUGE winner only if CISCO does not plan to retire it down the road.
For end users it will be a major benefit since EMC’s storage technology, which is immensely popular can easily integrate with Brocade (they have been working together for so long). My best bet is that CISCO/EMC will win this one if they go all out. EMC also recently bought out Data Domain which is very popular for de-duplication products. There may be some business ideas going back and forth to come out with some innovative ideas in the next year or so.
Oracle – It will only buy Brocade to build on its security platform and compete with CISCO in some areas. But there’s no major business benefit to Oracle though some may debate this. My opinion is Brocade/Oracle relationship is a no brainer compared with EMC/CISCO-Brocade.
But hey.. the race has just begun. Let’s see who wins it.
