It's a $3 billion gamble, but most observers see Brocade's announced purchase of Foundry Networks as a good move to shore up its stance against Cisco for the hearts and minds of the data center.
The buyout essentially expands Brocade's profile from a provider of primarily Fibre Channel SAN products to a full data center networking company supplemented by a tricked-out portfolio of Ethernet-based routers, switches and traffic management systems. The deal has Brocade paying $18.50 plus 0.0907 shares of Brocade stock for each share of Foundry stock.
The Ethernet angle is the key thing to keep in mind here, according to Jon Oltsik of the Enterprise Strategy Group blogging for News.com. With data storage expanding and Ethernet technology prepping for 40 Gb and even 100 Gb throughput in the next few years, a Fibre Channel-only strategy would put Brocade in a poor position. And the quickest way to gain Ethernet expertise is to buy it. It also allows Brocade to stand on its own when tapping new customers, rather than piggy-back on storage vendors like EMC and IBM.
Indeed, even while Brocade has been developing new 8 Gb and 10 Gb Fibre Channel technology, it has been downplaying developments like Fibre Channel over Ethernet (FCoE), saying the technology probably won't make any real headway in the enterprise until at least 2010. That should give the company just enough time to wrap up the Foundry purchase and gain the necessary experience with Ethernet systems.
Cisco hasn't said anything publicly about the deal, but individual employees like Brad Hedlund view it as confirmation that their Ethernet strategy was correct all along. With the carrier market already steeped in Ethernet, the data center is the next big market, and anyone who doesn't jump on the bandwagon is likely to get stomped. I'm guessing there are a number of Infiniband supporters who would argue that point.
Even with Foundry on board, Brocade is likely to remain the smaller competitor going forward, but that's not necessarily a bad thing. Foundry specializes in high-end systems that provide better profit margins than standard technology. And if you already have your heart set on Ethernet to bump up your network capacity, it's always better to have two providers than just one.