Deal Done, Brocade Gets To Work

Brocade (NASDAQ: BRCD) finally closed its $2.6 billion acquisition of Foundry Networks late last week.

Now the hard part begins.

The deal was announced in July, but ran into trouble in October amid a growing credit market crisis. The two agreed on a lower price in late October to reduce the deal’s reliance on debt, and Foundry shareholders finally approved the deal last week.

Brocade wanted to combine Foundry’s IP networking technology with its storage networking business in an effort to take on rival Cisco Systems (NASDAQ: CSCO) in the market for converged data center networks (see Cisco, Brocade See One Big Happy Fabric).

To help in the transition, Brocade named two networking veterans to top posts on Friday. Force10 and Cisco veteran Marc Randall was named Senior Vice President of Products and Offerings, and Palo Alto Networks founder Dave Stevens, who worked for Brocade following the acquisition of Rhapsody Networks in 2003, was named CTO. But Foundry founder and CEO Bobby Johnson won’t be joining the new company.

In a video presentation, Brocade CEO Mike Klayko was optimistic that the combined company’s products will find a market even in the worst economy in decades, but analysts seem to be taking a wait-and-see approach.

In a research note yesterday, R.W. Baird analysts Jayson Noland and Joel Inman called the company’s valuation “attractive,” but they added that “integration risk amid deteriorating IT spending … keeps us on the sidelines for now.”

Noland and Inman said field checks suggest that Foundry’s “commercial business is struggling as end users delay switch upgrades,” but they said they remain positive on Brocade’s core Fibre Channel switch business.

Brocade has a two-thirds share of the SAN switch market, but the Baird analysts noted that Cisco is a “large and formidable foe,” and that QLogic (NASDAQ: QLGC) is expected to win a low-end storage switch OEM deal, so “the competitive landscape could become more aggressive.”

Brocade will provide a formal update on the merger in mid-January.

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Paul Shread
eSecurity Editor Paul Shread has covered nearly every aspect of enterprise technology in his 20+ years in IT journalism, including an award-winning series on software-defined data centers. He wrote a column on small business technology for, and covered financial markets for 10 years, from the dot-com boom and bust to the 2007-2009 financial crisis. He holds a market analyst certification.

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