Update: Broadcom buying Dune Networks for cloud switching capabilities

If approved, the deal will further bolster Broadcom's lineup of chips for cloud computing equipment

Broadcom has agreed to acquire Dune Networks, a privately held maker of high-speed switch fabrics, for about $178 million, the companies announced Monday.

Dune was founded in 2000 and sells chip sets for high-capacity network equipment. Its SAND switch fabric can scale up from 10Gbps to 100Tbps in total capacity and support individual ports with speeds up to 100-Gigabit Ethernet, according to the company's Web site. It is designed as the heart of switches for datacenters, enterprises LANs, and carrier core and edge routers and Carrier Ethernet platforms.

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The acquisition, which is expected to close before the end of Broadcom's first quarter ending March 31, 2010, adds another piece to Broadcom's extensive communications chip arsenal. By bolstering the company's lineup for datacenter networking gear, it will help to meet growing demands for cloud computing infrastructure, Broadcom said.

Broadcom will pay mostly cash for Dune, which is based in Sunnyvale, Calif., and Yakum, Israel. The boards of both companies have approved the deal, but it is subject to customary closing conditions.

Dune's approximately 100 employees will be integrated into Broadcom's Network Switching Business Unit and the company's main research facility will remain in Israel, said Martin Lund, vice president and general manager of the unit. Lund said current Dune CEO Eyal Dagan would report to him. Broadcom is based in Irvine, California, but also has facilities in Silicon Valley.

Broadcom acquired another switch fabric maker, Sandburst, in 2006. It plans to keep the XGS Core architecture that came from Sandburst, which is well-suited to metro Ethernet and carrier applications, while turning to Dune to meet the growing demand for switches in massive datacenters, Lund said.

"The strategic importance of cloud computing, going forward, is so great that we want to make sure we have the best architecture for that," Lund said.

For companies building big datacenters, Dune's acquisition by Broadcom could eventually mean less expensive network equipment, according to Linley Group analyst Jag Bolaria.

Dune is the world's largest third-party maker of switch fabrics, Bolaria said. "It's probably the most scalable fabric in the market," he added. Whereas the XGS Core technology uses a centralized traffic scheduling mechanism, which can handle tens of terabits per second, Dune has a distributed scheduling system that can scale to hundreds of terabits per second, he said.

Most switch makers turn to third parties such as Dune for their fabrics, with Cisco Systems and Juniper Networks the main holdouts that still develop their own, Bolaria said. Dune's products may turn more attractive to Cisco and Juniper if they come under the wing of Broadcom, which is much larger and more certain to be around to support major product lines for decades to come, he said. Broadcom probably has its eye on product development groups within those switch giants as potential customers, Bolaria said.

The cost for those switch vendors to develop their own fabrics is immense, according to Bolaria. "Broadcom is saying, 'We can give you scalability,'" he said. If Cisco and Juniper turn to a third party such as Broadcom and datacenter switch fabrics became standardized, the cost of the equipment should go down, he said.

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