IBM/Brocade a non-issue for Cisco?

The rumored union between IBM and Brocade will fail to dent Cisco's market share, according to a blog post by David Gross, chief analyst and founder of Freesky Research. The reason is that big users still by direct from manufactuers instead of through OEMs or other distributors, Gross notes.

IBM and Brocade are believed to be near an OEM arrangement whereby IBM will resell Brocade's Foundry switches and routers, according to Gross and Reuters. The deal is based on IBM's dissatisfaction with Cisco entering the blade server market, according to the reports.

Gross argues that Brocade's strategy of being a soup-to-nuts provider of IT infrastructure -- part of the rationale behind its acquisition of Cisco networking competitor Foundry Networks -- is flawed. Companies have had more success against Cisco targeting niches where the giant is weak:

Companies showing any signs of success against Cisco are not broadening their product lines, but rather focusing narrowly on niches the large vendor has ignored. In addition to Cisco, Brocade/Foundry must now contend with a new crop of competitors like Arista Networks, Blade Network Technologies, and Woven Systems which focus on inexpensive, entry-level switches. In addition to pricing 10GBASE-CR and -CX ports at $500, these lean startups are going after a high volume market not dominated by Cisco, a fact which has already encouraged Juniper to compete in this sector.

Gross says Brocade's Foundry acquisition is reminiscent of the Nortel-Bay and Lucent-Ascend deals in the 1990s, two transactions that sought to compete with Cisco on a product breadth/company largesse scale vs. a surgical insertion into a niche market. These deals failed, while a successful niche company was being launched at about the same time -- Juniper.

Juniper...successfully took on Cisco by focusing on just the high-end router market, while Bay and Ascend did little for their new parent companies other than empty their checking accounts.

Gross argues that Brocade should have made another strategic acquisition in storage to solidify its leading position in that market rather than acquiring Foundry, a competitor with 2% market share already marginalized by Cisco's 72%. IBM reselling Foundry switches won't help that situation, he says:

Allowing Broadcom to walk away with Emulex for less than Brocade paid for Foundry will be a major blow strategically...IBM is still no match for the thousands of Cisco resellers distributing over $10 billion of equipment annually in the broader LAN and WAN markets.

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