Brocade/McData: Only fools rush in?

Will the union of two SAN switch vendors yield a stronger alternative to Cisco or create customer confusion?

The expectation that rivals Brocade and McData would eventually beat their swords into plowshares to present a united front against Cisco’s predations was already in the cards. Nonetheless, Brocade’s pre-emptive bid last week to gobble up fellow SAN switch vendor McData for a whopping $713 million is raising eyebrows.

Brocade’s star has been rising, while McData’s fortunes have declined, as the latter company struggled to digest a number of acquisitions. Greg Schulz, senior analyst at StorageIO, suggested that Brocade could have waited a couple of quarters and nabbed McData for a knockdown price.

Schulz said Brocade and McData need to learn from their previous mistakes in acquiring companies. “I hope they take a page out of Cisco’s book and make sure they don’t kill products too prematurely,” he said.

Both players have overlapping product portfolios and must choose which products to retain and which to jettison. Brocade CFO Richard Deranleau said the company would be swift and decisive in its actions.

The combined business will need to come up with migration strategies and work hard to mollify McData customers who have already endured several acquisitions in recent years. “They have to reassure them that they’ve finally reached stability,” Schulz said.

Some McData customers are bound to jump ship to Cisco. The networking giant now has a five- to six-month window to sow fear, uncertainty, and doubt among McData users and may look to ignite a price war to win them over, Schulz said. As a much larger entity with very deep pockets, Cisco can pretty much do and buy what it wants, said Mike Karp, senior analyst at Enterprise Management Associates.

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