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Did Brocade buy the right company in Foundry?

That’s the question I’ve heard asked in the wake of Brocade’s blockbuster $3 billion acquisition of Foundry this week. Some have suggested that Juniper Networks, which is much more competitive with Cisco in the Internet router market, might have been a better choice.

To get a better sense of where these Ethernet players stand in the market, I talked to some analysts at the Dell’Oro Group, which specializes in tracking the networking market. According to Ethernet analyst Alan Weckel, Juniper has 16% of the total router market, while Foundry has 1% (this as compared to Cisco’s share, at 65%). Foundry is also #3, according to Dell’Oro, in the service provider and total Ethernet switching market, behind Force10 Networks and ProCurve Networking, respectively.

However, Weckel pointed out, Juniper doesn’t register yet in enterprise Ethernet switches, having only announced enterprise products earlier this year; its enterprise-class Ethernet switches aren’t shipping yet. “In routing, Juniper’s a clear number two,” he said. “But on the Ethernet switching side, it’s very early to say.”

Marty Lans, senior director of Brocade’s data center infrastructure group, said that Ethernet is the meat of the product strategy behind the acquisition. “We’re looking to sell from the heart of the data center out,” he said. FCoE and 10 GbE are already areas where Brocade has some products, including FCoE equipment that Lans said will ship when the FCoE is ratified, probably later this year.

“Those are within the four walls of the data center,” he said. “This is an extension to our product line meant to go beyond the data center.””

Moreover, Forrester analyst (and, full disclosure, my former news director) Jo Maitland blogged yesterday that

Foundry has all but conceded the enterprise market and has been selling its switches to metro providers building Ethernet MANs. . . .Right now, enterprise networking teams will not buy Brocade (or Foundry) for Ethernet. Period. It’s too risky and operationally foreign. But it’s possible a more robust service provider could do it if there was a competitive angle.

So. Acquire a company that has already shipped product and failed to gain share, or acquire a company with better share in one aspect with a product that could go either way? “It’s a question mark,” said Weckel.

Another clue to the origins of this deal might lie in a name mentioned on Brocade’s conference call: Seth Neiman of Crosspoint Venture Partners. He provided the seed money to found both companies, and just may have had a hand in making the deal happen, according to Maitland.

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How could Brocade, with a market cap of $3billion before the acquisition was announced, acquire Juniper, with a market cap of $12billion? Foundry has about $1billion cash in the bank, so the true acquisition cost to Brocade is "only" $2billion.
I completely agree with Switch Guy. Anyone suggesting that they should have bought Juniper with a market cap of $12B needs to take another math class. The comparison is ridiculous.