Uncommon Wisdom

Nov 30 2009   6:58PM GMT

Brocade’s last quarter: Is a sale its best option?

Tom Nolle Tom Nolle Profile: Tom Nolle

One of the players that might be feeling some pressure from an HP/3Com deal, namely Brocade, says it’s not for sale. The company is a combination of storage networking and the acquisition of Foundry, a high-end Ethernet switch vendor. In its present form, it’s a pretty pure data center play in the enterprise space.

Brocade is also OEMed by IBM and is one of the companies we said might be acquired in the data-center-driven consolidation. So is it off the table? Apart from the fact that companies always say they’re not for sale, there’s the reality that the company was running ahead of the NASDAQ for most of this year but dipped below last week as it issued a disappointing forecast. Brocade has a relatively low market cap, small enough to make it worth a second look by some other players, we think.

Consolidation pressure in networking is going to mount through 2011 because of increased commoditization, according to our analysis of our fall survey data. The troubling truth about Brocade is its last quarter. As a data center player, it should have been able to pull in a pretty nice chunk, and the fact that it missed suggests that it can’t pull its own weight in the data center market, and IBM either can’t or isn’t pulling Brocaede through. Either one is a bad sign for Brocade, and it may mean that taking the money and running would be smart for management to consider.

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