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Brocade: NOT FOR SALE

On October 6, the Wall Street Journal reported an oxymoron: "Brocade Communications Systems Inc. has quietly put itself up for sale."  Since then news from one of the most widely read publications in the world has taken on a life of it's own as the industry leveraged the full capabilities of social networking to speculate on the endless possibilities.

I'm told at the Brocade sales meeting last week in Las Vegas, CEO Mike Klayko put up a slide that read "NOT FOR SALE." I for one am joining the Brocade sales team in taking it at face value and moving on. It's not going to happen, at least not now.

The reason that it's not going to happen is best illustrated in the October 7 Canaccord|Adams Daily Newsletter titled "FOR SALES GOOD AS SOLD?" where Paul Mansky and Katie Benson agree that Brocade boasts strong strategic positioning and that fundamentals warrant a $9-$10 share price, but take issue with the prevailing argument the company is a near-term acquisition target.

"The independent OEM-centric business model is central to the company's ability to maintain its storage footprint during the pending protocol transitions, while the "anybody but Cisco" story in Ethernet switching has not even begun to ramp. Ownership by a single OEM would hasten the demise of Fibre Channel (60 percent of revs) while limiting the Ethernet switch TAM expansion story. In our view, a sale today is like punting on a second down."

Mr. Mansky and Ms. Benson acknowledge that nothing is completely off the table, but they identified three primary issues with the logic behind the transaction. The following is excerpted from the Daily Newsletter:

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