Brocade/Foundry Readies Ethernet Invasion
Giving unusual detail about the thinking behind the acquisition, executives described how Brocade set the wheels in motion two years ago while seeding an aggressive acquisition plan. The service provider angle came as a bonus; in fact, officials didn't say much about their plans for that part of the business.
Brocade's $3 billion purchase of Foundry is expected to close in the fourth quarter, after a Foundry shareholder vote. (See Brocade Takes Aim at Cisco (& Juniper).)
Taking to the stage on crutches, Brocade VP of corporate development T.J. Grewal explained that the hunt for Foundry began with Brocade's planning sessions in 2006, as the company was buying McData. (See Brocade Bags McData For $713M.)
Brocade wanted to expand with further acquisitions, and it saw lossless Ethernet -- also called Converged Enhanced Ethernet (CEE), an Ethernet flavor tailored for the data center -- as a necessary investment.
"We recognized this change would be coming, so in 2006, we took a team, set them aside, and started developing our own ASICs around Lossless Ethernet," Grewal said.
Lossless Ethernet won't be a real market until at least 2010, though. Brocade wanted more -- more than what would become a four-year wait, and more than the "low teens" growth that McData would provide, Grewal said.
That led Brocade to start considering the broader Ethernet market. Getting into "regular" Ethernet would put Brocade on both sides of the server -- the storage side and the network side. It would increase Brocade's market substantially, and to hear Brocade tell it, this was a market crying out for an alternative to Cisco Systems Inc. (Nasdaq: CSCO).
"What we've heard a lot from our customers is that they need a challenger. They need an alternative," Grewal said.
Nearly every Ethernet contender was considered, including startups. (We're guessing Cisco wasn't on the list.) No one was eliminated immediately, but it became clear that a startup would lack the heft needed to make a substantial difference.
As Grewal told Light Reading after his presentation, large enterprises are leery that a small company will vanish or get acquired. That's why they tend to stick with Cisco -- and why they're so anxious for another company to match Cisco's breadth in the data center, he said.
In his presentation, Grewel also noted that Brocade wanted an acquisition that had consistent revenues, nothing "spiky."
Grewal's presentation didn't cover which companies were even willing to sell, but Foundry began to stand out in Brocade's research. A brand-name study by Brocade pegged Foundry as the No. 3 player in terms of customer perceptions, behind Cisco and Juniper Networks Inc. (NYSE: JNPR), of course. "The fourth place challenger, if you will, was more than 2x behind Foundry," said Tom Buiocci, Brocade's vice president of marketing.
But at the same time, Foundry arguably needed some help. People's bosses didn't recognize the name as they do Cisco's or Juniper's, Buiocci said. Foundry customers seemed happy, but the rest seemed indifferent to even trying Foundry's products.
"It's like every time I try to get my kids to try new food," Buiocci said. "Foundry, we believe, is a classic underrepresented brand."
Brocade now believes it's become the second most popular vendor of choice for next-generation data center Ethernet, behind Cisco. (See Brocade Grabs for Silver.) And unless Juniper regains that spot, Brocade doesn't expect to see much competition, because storage connectivity comes with requirements that most other Ethernet players can't serve and "won't be able to learn quickly," Grewal said.
Regarding competition against Cisco, Grewal pointed out -- as many analysts have -- that Cisco's business is threatening to overlap that of its partners, including EMC Corp. (NYSE: EMC), HP Inc. (NYSE: HPQ), and IBM Corp. (NYSE: IBM).
"We have built a history of working with them on their individual strategies. We don't compete with them," Grewal said. "There's lots of rumors about markets [Cisco] will be getting into next year which are competitive" with EMC and company.
— Craig Matsumoto, West Coast Editor, Light Reading