Is Brocade for Sale?

Brocade stock is climbing more than 20% Monday following reports that the company is "in advanced talks" to sell itself, with Broadcom named as a possible suitor.

The deal could be announced as soon as this week, according to a report on Bloomberg.

Brocade and Broadcom declined to comment.

Brocade traded at $10.58, up 22% Monday afternoon. Broadcom was down 0.81% to €153.74.

It would be a remarkable move for Broadcom Corp. (Nasdaq: BRCM) to buy Brocade Communications Systems Inc. (Nasdaq: BRCD). Broadcom makes lines of semiconductors serving wired infrastructure, wireless communications, enterprise storage, industrial and other applications. Brocade offers products in several of those industries, most notably storage area networking -- Brocade's declining legacy business -- and Brocade also has a growing wired and wireless networking business. For Broadcom to buy Brocade could make Broadcom's other semiconductor customers nervous that Broadcom is going to compete with them.

In its most recent quarterly earnings, Brocade reported $591 million revenue for the third quarter, up 7% year-over-year, with growth driven primarily by the acquisition of Ruckus Wireless, which closed May 27. The company saw brisk demand for Ruckus's indoor and outdoor wireless access points and managed service platforms. However, non-GAAP diluted earnings per share were $0.21, down 21% year-over-year. (See Brocade Revenue Climbs on Ruckus Acquisition, But Earnings Fall Hard and Brocade's $1.2B Ruckus Buy to Raise 5G Game.)

Storage-area networking was the foundation of Brocade, but that business is contracting. While Brocade maintains that the emergence of web-scale applications are driving ever-increasing data center storage demands, operators aren't looking to Brocade products to fill that demand. SAN product revenue for the most recent quarter was $282 million, down 9% year-over-year.

Offsetting the SAN business, Brocade has been on a long expansion into IP networking, driven by acquisitions, beginning in 2008 when Brocade picked up Foundry Networks for Ethernet switches and routers. Brocade bought Vyatta in 2012 for SDN assets. (See Brocade to Acquire Foundry and Brocade Buys Vyatta for Software Routing Smarts.)

Brocade has also scooped up several companies for wireless technology. In addition to the Ruckus acquisition, Brocade bought Vistapointe for analytics and mobile visibility two years ago, and last year acquired Connectem for carrier-focused wireless networking. (See Brocade Buys NFV Management Smarts, Brocade to Acquire Connectem for Virtual Mobile Networking and Brocade Aims for Global Mobile Domination.)

Last year, Brocade bought the SteelApp application delivery controller business from Riverbed Technology. (See Brocade Scoops Up Riverbed's SteelApp ADC.)

And this year Brocade picked up StackStorm for DevOps automation applied to networking. (See Brocade Buys StackStorm to Boost DevOps.)

Related posts:

• Broadcom Samples 64-Port 100G Switch Chips
• Brocade Debuts Long-Overdue Router Refresh
• Brocade Looks to Bridge Network & Cloud Automation
• Brocade: 5G Is More Than Just an Air Interface

— Mitch Wagner, , Editor, Light Reading Enterprise Cloud

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