Why Nobody Wants to Buy Brocade?

At the beginning of October, The Wall Street Journal wrote: "Brocade Up for Sale, HP or Oracle May Be Interested". The company didn’t deny this information. But only one month later, Brocade’s CEO Mike Klayko said that its company was not (anymore) for sale.

It’s not surprising as we don’t see any firm acquiring the Ethernet/FC company. The potential buyers have to be a computer giant as the price has to be higher than the current market cap of Brocade, $3 billion, for a company with annual sales of $1.95 billion.

Look at the potential buyers able to be interested by the connectivity company: there are Cisco, Dell, EMC, HP, IBM and Oracle.

Three of them, EMC, HP and IBM, are big Brocade’s OEMs, which means that the buyer will get products needed as a better price, but will progressively lose the two other ones as they are competitors in the storage networking market. For Dell reselling EMC, it’s about the same situation. Note that OEMs represent 65% of the Brocade’s total revenues in its more recent quarter ended October 31, 2009 even if this percentage is decreasing – it was 88% one year ago.

Furthermore, all of them are working deeply with competitor Cisco. Following the recent launch of joint-venture Acadia between Cisco and EMC, do you see EMC buying Brocade? An HP buying Brocade after its recent acquisition of 3Com for $2.7 billion? No way. And Big Blue, less and less interested by hardware products?

Oracle has not completed its acquisition of Sun, currently stopped par EU, and is obliged to wait to enter into negotiation to get another big company. But Larry Ellison likes hardware to bundle it with software, the proofs being his own investment in Pillar and the Sun’s operation. If there is any chance for Brocade to be acquired in the future, it could be by Oracle to try to stop EMC/Cisco and HP/3com in the next wave of converged network.

Cisco, the last possibility, acquiring Brocade? There is a risk of an anti-trust action that could stop the union between the two main prividers of directors.

No one potential buyer is really interested by Brocade.

Now if we look at the companies involved in connectivity only and trying to expand, there are too small to get a big fish like Brocade. You can imagine a merger with Emulex, F5 Networks, Force 10, Juniper or QLogic, not an acquisition.

Why Brocade wanted to be acquired as the company is in good financial health with no one interested by the acquisition? That’s a mystery. It’s difficult to believe that Brocade acquired Foundry not really to enter into Ethernet but to prepare an acquisition process.