SecurityRatty: Foundry Networks - Brocade's 3 billion dollar baby

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Foundry Networks - Brocade's 3 billion dollar baby

2008-07-21 23:04:10 by HASH0x8b169ec in StillSecure, After All These Years

By now you have probably heard that Brocade is making a big push from storage networking switches into Ethernet switches by buying Foundry Networks for almost 3 billion in cash. Actually the deal is valued at about 2.8 billion. However, Foundry has about 800 million or so in cash and liquid assets. So taking that into account, the deal is for about 2 billion really, according to the San Jose Mercury News. Still that is quite a number when you consider that $18.50 of the $19.25 price per share is in cash. That works out to about 2.7 billion. Considering Brocade only had about 700 to 800 million in cash itself, that means someone is lending them about a billion and half. Again according the Mercury News, it is Bank of America and Morgan Stanley. This is a 41% premium over Foundry's closing price. Pretty sweet!

The real question is what does Brocade do with this. With all of that debt, do they have what it takes to go on and take on Cisco now? The highways and byways of Silicon Valley are littered with companies that have tried to take Cisco out of this market. What about the 7 dwarfs who currently compete in this market. Companies like HP ProCurve, Extreme Networks, Nortel, Enterasys, Alcatel-Lucent and Force 10 are not small little companies. These are companies with 100's of millions, if not billions of dollars of market cap themselves. They are not going to roll over and die here. Will this set off a round of consolidation for these players to bulk up in order to compete in this brave new world of networking? I think so. What about next gen secure switches like ConSentry, Nevis and Napera? Or some of the other smaller switch vendors like D-link? Do they view this a a good opportunity to get bought by one of the giants or do they think they can run through the legs of these giants? I don't know but it is going to be a high barrier of entry into this market.

Ultimately though I don't think Cisco will lose its place of dominance very easily. Brocade will be another competitor among the other switch vendors fighting over 25% of the market. But it sure will be interesting in the switch market for a while.