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Brocade In Dell's Sights?

Paul Mansky of Canaccord Adams published a Flash Report Wednesday titled, "Dell Looks Poised for a Networking Move." In the report, Mr. Mansky establishes the motive for Dell acquiring a networking vendor when he says, "With the acquisitions of EqualLogic, Perot, and Compellent (among others), Dell now has a beachhead in three of the four primary layers of this stack--storage, servers, and services. Networking is the one crucial piece that is missing."

Mr. Mansky then singles out Brocade as the target. "We view Brocade as the most likely target for myriad reasons. First is the absence of alternatives. Juniper is 80%--not Dell's business--and Extreme and Force10 carry insignificant share. Second, Brocade's Fibre Channel (FC) business should be an attractive cash engine for at least five years."

After talking to various people in the industry, my casual interest in the speculation in this report turned into a firm belief that it's happening now.

First, industry insiders are claiming to have heard about the deal. Second, the company has implemented dramatic expense reductions, which look suspiciously like the actions of a company preparing to be acquired. Third is timing. The Dell Storage Forum is going on next week in Orlando. This end-user forum would be a perfect venue to announce the acquisition.

If it happens, a Dell acquisition of Brocade will ripple through the industry. Here's what I would do if I was the CEO of these companies:

Broadcom--Apologize for all the mean things we said, and make another run at Emulex. We think we can get their LOM and converged adapter design wins, as well as a profitable Fibre Channel adapter business, for under $1B. We're going to grab it before someone else does.

Cisco--Ask again why we started all this by bringing out a server with our own switches and adapters inside.

Emulex--Get ready for friendly phone calls from Broadcom, HP, IBM, and LSI.

HP--Pick-up Emulex for the chip and adapter technology we have already designed into my servers for the next several years, then the Fibre Channel, FCoE, and InfiniBand switch business of QLogic to round out our switch portfolio.

LSI--Since we already fab their chips, we're re-entering the network LOM and adapter market by acquiring Emulex. This gives us a competitive, low cost portfolio to compete with Broadcom and Intel.

IBM--We have a start on my Ethernet switch portfolio through my acquisition of BLADE. Next we'll add Emulex LOM and adapter technology, then the Fibre Channel, FCoE, and InfiniBand switch business of QLogic to flesh out our switch portfolio.

Mellanox--We hope Larry is watching what's going on. Our rich portfolio of networking chips, adapters, and switches, is now worth more than it was when Oracle made their initial investment.

Oracle--We want a full cloud stack, so we're going to exercise whatever options we have related to my recent investment in Mellanox.

QLogic--There is a God. HP, IBM, and Oracle will run away from Dell|Brocade, to my new growth engine ... switches.

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