Brocade buys Rhapsody Networks, plans new switches

By Kevin Komiega, News Writer 06 Nov 2002 | SearchStorage.com

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Brocade Communications Systems Inc., has become the latest major storage company to gobble up a smaller company in its quest for new technology. The San Jose, Calif., storage switch maker announced on Tuesday a deal to acquire Rhapsody Networks Inc. of Fremont, Calif., a privately held provider of switching platforms.

As a result of the acquisition, Brocade expects to deliver a new line of fabric application switches, which it said would be fully interoperable with the Brocade SilkWorm family of Fibre Channel fabric switches.

Under the terms of the acquisition agreement, Brocade will acquire all outstanding shares of Rhapsody in exchange for 23.4 million shares of Brocade common stock. Based on the closing price of Brocade stock as of Nov. 4, the deal will be valued at approximately $175 million, according to Brocade.

Brocade estimates that the first fabric applications based on these platforms will be available from specified OEM partners by the end of 2003. The Rhapsody intelligent fabric application development platform is available today to OEM partners.

Rhapsody's switch architecture is multifaceted. It hosts fabric applications directly and supports multiple protocols, including Fibre Channel and IP, which are accessed through an open API. Brocade said the API would be integrated with the Brocade Fabric Access API to deliver a complete interface for the development of storage and data management applications.

Storage area network (SAN) customers will be able to centralize data management by integrating fabric applications into their existing environments, while protecting their investments in Brocade SAN infrastructure, said Brocade CEO Greg Reyes in a conference call Tuesday.

Brocade's acquisition of Rhapsody had been the subject of rumor and speculation throughout the industry for the past several weeks. In recent months, storage hardware and software vendors have been hunting down and consuming startup companies en masse.

In September, Hopkinton, Mass.-based EMC Corp. acquired the remains of storage service provider Sanrise Inc., as well as storage resource management (SRM) software maker Prisa Networks Inc. In August, IBM Corp. bought an SRM vendor of its own, TrelliSoft Inc., with plans of incorporating TrelliSoft technology into the Tivoli software product line.

"If there are ways of accelerating your positioning in the market by buying something that would put you head and shoulders above the competition right away, then it's a good thing," said Jamie Gruener, senior analyst for e-networks and broadband access at Boston-based Yankee Group Inc. "There are a lot of small companies that won't survive. If I were a large vendor I would be walking around with a shopping cart figuring out what to buy."

Gruener said that Rhapsody Networks' strength is in its open architecture. The company has been working with many third-party vendors to develop its switch products.

Gruener said the pressure is on Brocade to keep its technology ahead of the switching pack. "Brocade has wanted to offer a virtualization platform for its [switch products]. They are under some pressure to get there quickly with increased scrutiny and with Cisco entering the market," he said.

"Right now, there are many startup companies that are struggling financially because the market didn't materialize as fast as expected, due to the economic downturn. Consequently, acquisition of key technology may be at a bargain price," said Randy Kerns, senior analyst for the Boulder, Colo.-based Evaluator Group Inc.

Kerns said that the time it takes to get a new storage product to market is a crucial factor in success. "We expect to see many acquisitions in the next few months," Kerns said.

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