Cisco gains SAN share as Brocade looks for buyer

SAN leader's stock up 10% on bid reports; things picking up for Cisco in data center networking

Has Brocade finally found a buyer? Reports that it was close tickled the company's stock this week.

Reuters, citing "sources familiar with the matter," said Brocade has received first-round bids from a half dozen potential private equity buyers. The report sent the company's stock up over 10% on Monday, before it settled back and closed the day up 35 cents.

The six companies, according to Reuters, are Silver Lake Partners, TPG Capital LP, KKR & Co LP, Blackstone Group LP, Bain Capital and Warburg Pincus LLC. Others have met with Brocade but not submitted bids, according to the report.

Brocade enlisted Frank Quattrone's Qatalyst Partners in November to focus on a deal that could result in a leveraged buyout, according to Reuters. Qatalyst, Brocade and the six private equity firms all declined comment for the wire.

Brocade began shopping itself around more than two years ago. It failed to find a buyer back then, even though a host of potential big name suitors emerged: HP, Oracle, IBM, Dell and Juniper.  But with Brocade's OEM sales model for SAN gear, and other, cheaper alternatives available for Ethernet switching - which Brocade acquired by purchasing Foundry Networks in 2008 for $2.7 billion - the potential buyers backed off.

Now, the private equity firms are circling. It'll be interesting to see if the company remains intact or is sold off in pieces - if a sale occurs. It might fetch more for Ethernet and SAN separately than together, even though FibreChannel is expected to morph into Ethernet over time. That makes FibreChannel a declining asset in some eyes but the slow uptake of FibreChannel-over-Ethernet (FCoE) might keep its value up for awhile.

Speaking of FibreChannel, Cisco has made gains on Brocade in SANs, according to research firm Infonetics. A year ago, Brocade had about twice the market share of Cisco in overall SAN equipment revenue but in Q3, Cisco climbed to within eight market share points of Brocade. Infonetics attributes this to the success of Cisco's data center convergence strategy, which includes a bullish proposal for FCoE. FCoE switches grew 170% in Q3, while the global SAN equipment market - switches and adapters -- grew 12% from last year, Infonetics found.

Cisco also increased its revenue and market share in data center network equipment overall, according to Infonetics. This includes general purpose, purpose-built and blade data center Ethernet switches, application delivery controllers and WAN optimization appliances.

In Q3, this market was up 12% over last year and 12% from Q2, Infonetics found. Purpose-built data center Ethernet switches grew 800% from last year.

F5 also saw a jump in revenue and market share, vaulting it past HP for the #3 spot in this market, according to Infonetics. HP saw a drop in both revenue and market share in Q3.

Infonetics expects the 2011 market to be up about 6% over 2010, and growth to reach double-digit percentages in 2012.

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