Broadcom bids billions for Brocade in order to break it up

Broadcom wants Brocade's Fibre Channel business, but not its faster-growing IP networking activities

Chip maker Broadcom wants to buy storage vendor Brocade Communications Systems, stripping out its Fibre Channel business and selling the rest.

Broadcom has agreed to pay around US$5.5 billion for Brocade, it said Wednesday.

But it doesn't want all of it: After the deal closes -- between May and October 2017, Broadcom hopes -- it plans to sell off Brocade's IP-based wireless and campus networking, data center switching and routing, and software networking products.

The bit Broadcom wants to keep, Brocade's Fibre Channel SAN business, is in for a challenging time as enterprises turn to cloud storage and hyperconverged infrastructures. Fibre Channel doesn't play well in the virtualized SANs that hyperconvergence entails.

While Brocade's Fibre Channel SAN products still account for more than half its revenue, they will soon be eclipsed by its IP networking systems. Brocade reported third quarter SAN revenue down 9 percent year on year, while IP networking revenue rose 36 percent.

But Broadcom's director of tech marketing, Mark Jones, still sees a bright future for Fibre Channel, he said last month.

In a blog post for the Fibre Channel Industry Association, of which he is president, he pointed to flash storage in data centers as a future growth market for the technology, as work on a specification for Non-Volatile Memory Express (NVMe) over Fibre Channel is almost complete.

Broadcom already makes Fibre Channel chips, but acquiring Brocade's Fibre Channel business will give it something else to offer its customers, some of which are also Brocade partners.

Neither company said how much they expected the non-Fibre Channel part of Brocade to sell for, although Broadcom described the business as valuable.

Putting a price on the wireless part of the business is simpler, though: When Brocade acquired network equipment vendor Ruckus Wireless in April, the deal was valued at $1.2 billion.

It's been only nine months since Broadcom itself was an acquisition target: It was bought by Avago Technologies, which adopted the Broadcom name for the combined entity.

The company designs and sells analog and digital semiconductors for wired and wireless communications, enterprise storage, and industrial systems. Its products can be found everywhere from home automation devices to data centers.

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