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Broadcom May Be Considering a Purchase of Brocade

Broadcom May Be Considering a Purchase of Brocade
Linda Hardesty
Linda HardestyOctober 31, 2016
4:02 pm MT
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According to a report from Bloomberg, Brocade Communications is in advanced talks to sell itself, and Broadcom is a potential bidder.

Brocade’s stock was up about 22 percent this afternoon, or about $10.60, after the report.

It’s not immediately apparent what synergies the two companies might share. Broadcom is an established chip maker. And Brocade makes data center equipment; its bread and butter is fibre channel storage area networking (SAN) equipment. It’s unknown whether Broadcom wants to expand its business beyond silicon — into storage and networking equipment.

It’s possible that Broadcom’s name is simply being whispered as a stalking-horse sales maneuver to accelerate the bidding process.

Rumors of Broadcom shopping itself have swirled for years. In May, there was talk that it might be courting private equity firms.

“We have viewed it as an unlikely acquisition candidate given its exposure to the secularly declining fibre channel switching market, and sub-scale IP networking position,” writes Goldman Sachs Analyst Simona Jankowski in a research note today. “However, Brocade could offer vertical integration benefits to a potential acquirer.”

In terms of vertical integration, she notes that Broadcom provides silicon for Ethernet switches, WiFi chips, and fibre channel adapters — all areas where Brocade provides equipment. On the down side, if Broadcom got involved in switching equipment, that would put it in direct competition with many of its customers including Arista, Cisco, Dell, HPE, Juniper, and white box vendors.

Earlier this year, Brocade acquired Ruckus Wireless for $1.2 billion. Based on Friday’s stock price, Brocade would have a market valuation of about $3.5 billion.

An acquisition of Brocade could be announced as soon as this week, according to Bloomberg.

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Linda Hardesty

About Linda Hardesty

Linda Hardesty was the Executive Editor at SDxCentral where she oversaw the news coverage for a team of writers. She's been a trade journalist since the mid-1990s, alternately writing about telecommunications and energy. Prior to SDxCentral, she was editor of Energy Manager Today. Previously, she wrote for Cable World magazine and Communications Technology. Linda can be reached at lhardesty@sdxcentral.com.

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