mergers & acquisitions

Oracle isn’t after Brocade, but what about Extreme?

Oracle CEO Larry Ellison dismissed the Wall Street Journal’s speculation that his company (among others) was interested in buying Brocade while speaking at the comapny’s annual shareholders meeting yesterday, according to MarketWatch’s John Letzing, IBM, HP and Juniper remain potential suitors according to the Internet rumor mill.

Meanwhile, Extreme Networks’ stock price took a relative beating on Tuesday after it lowered its earnings for its first fiscal quarter (which ended Sept. 27). Wall Street analysts were expecting Extreme to make $80.4 million but Extreme says it will be closer to $66 million. Extreme cited supply chain problems, which should scare customers. Other networking vendors have admitted to supply chain problems in the wireless LAN market, but I haven’t heard anything about wired networking supply chain problems before. Extreme said it has lost some deals and had other delayed by the problem. Are Extreme’s suppliers giving preference to larger networking vendors?

Extreme’s market capitalization is at $231 million as I write this. It would come a lot cheaper than Brocade and would offer someone like HP ProCurve a nice complementary line of data center switches.

HP or Juniper to buy Brocade?

A year ago Brocade was a buyer. Now its a seller and HP or Juniper might be buying.

Citing unnamed sources, The Wall Street Journal reported yesterday that Brocade Communications has put itself up for sale. This news comes less than a year after Brocade closed on its own acquisition of Foundry Networks, a $3-billion deal which gave the Fiber Channel storage networking market leader a broad portfolio of high-performance Ethernet switches and a variety of other data center networking products. Brocade has since inked some high profile OEM agreements with companies like IBM, creating a promising sales channel for the Ethernet products.

The Journal reported that HP and Oracle were likely suitors for Brocade. Oracle seems like a strange fit, but HP makes sense, given that Brocade’s former Foundry switches would fill a gap in HP’s ProCurve switching portfolio. ProCurve lacks a track record in high density Ethernet switches, something Foundry specialized in. The deal would also boost its storage business and give HP a much broader overall suite of data center products.

Now Journal blogger Michael Corkery speculates that Juniper might be a buyer for Brocade, too. Known more for its service provider routing business, Juniper recently rolled out its own line of enterprise Ethernet switches, but it has $2 billion in cash. A Brocade acquisition would give Juniper a much more established switching business, plus a lucrative storage networking business with deep and successful partnerships with IBM and EMC.  But Juniper’s stated switching strategy is centered around the concept of having one operating system, JUNOS, across all of its networking products. Buying Brocade would force a complete change in direction.

Cisco plans to enter 50 new markets: acquisitions inevitable

BusinessWeek reported yesterday that  Cisco is poised to make several acquisitions as it continues to diversify. The magazine noted that Cisco now competes in 30 different markets, many of them courtesy of acquisitions, such as Pure Digital, which gave Cisco a new toehold in the “Flip” video camera market. In an interview with BusinessWeek, Chambers said Cisco will enter 50 new markets within a year.

One of those markets, of course, is blade servers. Cisco announced its new Unified Computing System this spring, putting it in direct competition with companies that it has historically partnered with: IBM, HP and Dell. BusinessWeek noted that IBM alone sells about $3 billion worth of Cisco’s network technology through its consulting services.  Since rumors of Cisco’s move into servers started spreading, IBM has since increased its ties to Cisco’s networking rivals. It has partnered with Juniper on its Stratus cloud computing project and it announced an OEM agreement to sell IBM-branded versions of Brocade’s Ethernet switching and routing gear.

One analyst, Sam Wilson of JMP Securities, told BusinessWeek that the souring relationships between Cisco and the consulting arms of HP and IBM could force Cisco to develop its own consulting services. He said: “If push comes to shove” Cisco could simply buy Accenture, one of the biggest consulting firms on the market.

Cisco doesn’t seem to be shy about making such a sizable acquisition, either. Cisco’s mergers an acquisitions chief Ned Hooper told BusinessWeek that Cisco could easily afford a $10 billion deal right now. It has $33 billion in cash. But Hooper went on to say that Cisco will focus on smaller deals for now.

More networking acquisition rumors for HP

Bloomberg News is reporting that HP may make an acquisition soon to counter Cisco’s move into the server market. Shaw Wu, an analyst at Kaufman Brothers, an investment bank and broker that specializes in the technology sector, told Bloomberg that Brocade and Juniper are two potential targets, along with storage vendor NetApp.

Bloomberg framed the potential acquisitions in terms of triggering revenue growth because one of HP’s bread-and-butter markets, PC sales, is contracting the the recession. However, picking up Brocade or Juniper would have tremendous strategic value for ProCurve, HP’s networking business.  ProCurve is generally perceived as the number two network switching vendor, but it lacks one key element from its portfolio: high-density, high-density 10/100 Gigabit Ethernet switches. Juniper’s young family of EX switches would help HP ProCurve take a big step forward toward filling that gap.  Brocade’s line of high performance switches, which it acquired with Foundry Networks last year, would also be an ideal fit.

Acquisition speculation has surrounded HP’s ProCurve business for months, ever since HP put a renewed focus on building up its networking business to compete more directly with Cisco. Cisco’s announcement of its Unified Computing System servers has only intensified the conflict between HP and Cisco.  Brocade and Juniper would be two rather large acquisition targets for HP. If the company wanted to acquire 10/100 GbE expertise on the cheap, it could target some of the smaller high-performance networking vendors on the market. As GigaOM noted several months ago, Arista, Blade Network Technologies or Force10 would make a lot of sense.