Brocade Takes On Cisco With $3B Foundry Buy

The acquisition will bring Foundry's portfolio of enterprise routers, switches, security and traffic management products into the Brocade fold, giving the San Jose, Calif-based vendor the building blocks for next-generation data center solutions, said Mike Klayko, CEO of Brocade, in a conference call.

"We expect to accelerate innovation and grow our joint position in the large and dynamic networking market. We will be uniquely positioned from LAN to SAN on both sides of the server, from the Internet to the heart of the data center, to address the trends of convergence and evolving next-generation networks," Klayko said.

Brocade CEO Mike Klayko

Under the terms of the deal, expected to close by the end of 2008, Brocade will pay a combination of $18.50 in cash plus 0.0907 shares of Brocade common stock in exchange for each share of Foundry common stock, creating an aggregate purchase price of approximately $3 billion.

The trend toward consolidating data centers, combined with the growing popularity of virtualization technologies, is creating demand for new data center architectures, said Marty Lans, senior director of data center marketing at Brocade in an interview with ChannelWeb.

The Foundry acquisition fills a hole in Brocade's data center strategy by allowing it to fill out the Ethernet side of its business, he said.

Brocade's move to add more networking technology to its storage portfolio coincides with Cisco's push to add more storage capabilities to its networking lineup.

The purchase of Santa Clara, Calif.-based Foundry will bring Brocade into a direct face-off with Cisco and will give the channel a new option in end-to-end data center solutions, Lans said.

"We believe that to do this new data center, right now Cisco is the only option for the total end-to-end space. We provide an alternative," Lans said. "All the Ethernet players tried it from Cisco's strengths. Nobody ever tried it from our strengths, from this side of the table," he added.

Lans said it's too early to tell whether a combined Brocade/Foundry solution would be less expensive than a comparable Cisco offering.

"I can't really speculate on price just yet, but I'll tell you the technology will be better, because it is today," Lans said. "What you get from Cisco comes from one large company. What you get from Brocade and Foundry together are two smaller companies that are leap years ahead in terms of technology offerings."

Cisco could not immediately be reached for comment.

Channel partners currently working with Brocade or Foundry will find new opportunities to build next-generation data centers, Lans said.

"A typical Foundry partner has to talk to a lot of different groups within the data center -- the storage guy, the server guy -- and maybe he doesn't get a lot of traction. Having our equipment already in there builds that credibility that we are standing behind it," Lans said.

Lans said the two vendors' product lines will stay intact, though Brocade will look for ways to tie them together.

The deal has been approved by the boards of both companies and is subject to approval by Foundry shareholders. Brocade plans to finance the deal through a combination of cash on hand from both companies and proximately $1.5 billion of committed debt financing.

Foundry Monday also reported second-quarter financial results. For the quarter ended June 30, Foundry earned $18.3 million, or 12 cents per share, compared to $15.6 million, or 10 cents per share, in the same quarter a year ago. The company reported sales of $160.7 million for the quarter, up from $143.2 million a year ago.

Foundry has approximately 1,100 employees.