Watch out Cisco: Here comes Brocade/Foundry

$3 billion deal raises stakes in Ethernet switching market

Brocade's proposed US$3 billion acquisition of Foundry Networks this week would create a stronger data center competitor to Cisco while raising the stakes even higher for other Ethernet switch companies.

Brocade, the market leader in Fibre Channel storage-area network (SAN) switches, says combining itself with Foundry will create an end-to-end alternative for next-generation data centers unifying Fibre Channel and Ethernet.

"Brocade has said that they will introduce a router that will allow the routing of Fibre Channel over Ethernet (FCoE) for both Fibre Channel and Ethernet SANs," says Deni Connor, principal analyst at Storage Strategies Now. "But they haven't had a lot of experience in IP/Ethernet-centric technology. They really needed more Ethernet experience."

For Foundry, the deal gives it a unified data center fabric play to dovetail with its high-performance Ethernet switching portfolio for data centers. It also creates a more formidable competitor to Cisco for ownership of the FCoE market, though analysts believe Cisco won't feel much pressure from it.

"We do not believe that this development poses any material implications to Cisco's LAN switching business for the time being," states Ryan Hutchinson, vice president, Data Networking & Infrastructure, at Lazard Capital Markets in a bulletin on the deal. "We believe any strategic gains from having footholds in storage, LAN switching, and carrier routing are likely long-term-focused and incremental gains will likely be immaterial to Cisco."

The more intriguing implications of the union will be to the rest of the Ethernet switching market. Cisco's 70 per cent-plus market share dwarfs that of other players -- Nortel, HP ProCurve, Force10 Networks, Extreme Networks, Enterasys Networks and new entrant Juniper, among them. This deal leaves them further behind, observers note.

"I've been a little disappointed in the rest of the vendors' lack of movement towards the whole concept of a unified fabric," says Zeus Kerravala, senior vice president of enterprise research at The Yankee Group. "I just get the feeling that the rest of the industry, they're like a bunch of little kids with their hands over their ears screaming, 'I don't hear you' when you talk about this trend. It's coming."

The onus may be mostly on Juniper to respond, but the pickings are slim, Kerravala notes.

"There isn't really another storage pure play out there," he says. "If you're Juniper now and you want to get into this market, you need to acquire the combined entity" at a high premium.

"It puts both Cisco and Brocade in a unique position to compete for data center connectivity long-term," Kerravala says.

And though Foundry was one of the Ethernet switching companies fighting an uphill battle against Cisco for market share, Brocade picked the best of the lot, according to Steve Schuchart of Current Analysis.

"They could have gotten a different company cheaper but to buy Foundry puts them in a very bright spot," he says. "Foundry's on the rise, they've got good technology, they've got good momentum, they're well known in that high-performance market, that super-big data center market where Brocade really likes to live. You couldn't ask for a better pairing."

A bonus for Brocade, Schuchart says, is the technology depth for future product innovation and Foundry's presence, albeit tiny, in service provider routing.

"That section of the business makes money," he says. "It's been growing. And if Brocade wants to be a complete player -- if they really, really want to play with everybody -- they have to keep it."

Business with North American carriers helped Foundry this week report better-than-expected preliminary second quarter results of US$160.7 million in revenue and earnings of US$18.3 million.

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Jim Duffy

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