Article

Is Brocade for sale?

Kevin Komiega

Rumors have been swirling about the future of switch maker Brocade Communications Systems Inc., the latest of which points to the company possibly putting itself up for sale.

According to sources, after the failure of private attempts by CEO Greg Reyes, New York-based investment firm Morgan Stanley may be trying to broker a deal to sell Brocade.

When asked whether Brocade was shopping itself around, a spokesman for the San Jose, Calif.-based company said, "Brocade does not comment on rumors or speculation."

But rumors beg a number of questions: Why would Brocade be on the market? If the vendor is truly up for sale, who are the likely buyers? And, ultimately, what would such a move mean for existing storage switch customers of Brocade and its competitors? What would it mean for the Fibre Channel SAN industry, if anything?

In an attempt to gain answers to these questions, SearchStorage.com turned to a few industry analysts and consultants for their take on a potential Brocade fire sale. Their collective input? While some acknowledged challenges with Brocade's product line and execution, the jury's still out on the prospect of an impending sale.

Marc Farley, a SearchStorage.com expert and president of Building Storage Inc., doubts that Brocade wants to sell out, but there are some interesting points to be considered, he said.

"I suspect the company is in real trouble with its product plan," he said. "Their execution over the last

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couple of years has been dismal. The acquisition of Rhapsody has not delivered any products to date."

He said Brocade is expected to debut products based on Rhapsody Networks' technology next year "late and without leading features." He added that the new products are likely to require users to commit to major upgrades.

Farley said that if Brocade were to be bought, it would not be by the likes of McData Corp. or Cisco Systems Inc. "It's much more likely to be a networking company that competes with Cisco and is afraid of getting shut out of the storage business," he said.

According to Farley, possible buyers include Juniper Networks Inc., Extreme Networks and Foundry Networks Inc.

John Webster, founder of Data Mobility Group Inc., also does not believe Brocade is for sale. "It doesn't make a whole lot of sense. It doesn't make any more sense than Dell buying EMC," he said.

Webster doesn't perceive Brocade as being in any type of trouble, from a financial or competitive standpoint. "The jury's still far out on whether or not users will allow Cisco to dominate the storage switch market," he said. "Maybe the street thinks that the minute Cisco casts a shadow over a market like this it tends to darken everybody's balance sheet. I don't see it."

"I think that [Brocade has] some pretty advanced intelligence technology, and the OEM community thinks so as well," Webster added. "There may be a lull in 'wow' products coming out of Brocade, but I think it's temporary."

At TechTarget's Storage Decisions conference in September, Gartner Inc. vice president and research director Nick Allen said: "I would characterize Brocade as in denial about everything. So far, they have been nimble enough [to stay competitive] through acquisitions, but [they] have been reactionary."

Likewise, in a panel discussion at the conference, IT managers downgraded the performance of Brocade against competitors when it came to the company's ability to satiate users' end-to-end storage needs. Detracting features mentioned by panelists included Brocade's inability at one time to offer hot code load functionality in its SilkWorm 12000 director, a factor that made it difficult for one panelist to perform rolling upgrades.

On a positive note, TheStreet.com reported Wednesday that Goldman Sachs analyst Brenden Smith believes Brocade may have worked a deal with Dell Inc. for a low-end switch that will sell as part of Dell's SAN bundles in 2004.

Let us know what you think about the story; e-mail: Kevin Komiega, News Editor.

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