Is Dell Buying Brocade? Maybe, Maybe Not

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It's almost comical how similar financial markets are to junior high school.

The rumor mill was in full tilt last week with word that Dell was seriously courting Brocade as a means to shore up its position as an end-to-end data center solutions provider.

As far as I can tell, the ball got rolling on Thursday when a single market analyst, Paul Mansky of Canaccord Genuity, issued a short note that Brocade would make a good fit for Dell considering it would bring much-needed networking prowess to the lineup. There was no mention of actual talks taking place, let alone a pending announcement - just word that Dell was looking to borrow a large sum of money that might be used for an acquisition of some kind. But the blogosphere had picked up the Brocade scent and by the end of the week the company's share price had risen nearly 7 percent.

On the surface, a Brocade buy would give Dell a stronger presence in the Fibre Channel market and would allow Dell to more effectively compete against the likes of HP and Cisco. However, as Yankee Group's Zeus Kerravala pointed out to Network World recently, the deal makes much less sense for Brocade right now. The company is the only networking vendor with 16 G FC in the channel right now, and would certainly lose some very lucrative OEM deals with IBM, EMC and HP if it were to become a Dell subsidiary. That means the sale price would likely be high, but the revenue generation would take a hit once the merger is complete.

And the fact is, Dell would probably have a fair amount of trouble ingesting Brocade, according to tech analyst Dave Cahill. True, Dell OEMs a lot of Brocade IP gear, but that is primarily due to Dell's SMB strategy with mid-level server and storage lines like EqualLogic. A high-end networking line like Brocade's simply does not gel with Dell's stated goal of pursuing open, modular platforms that can more easily tap into burgeoning cloud environments.

But since we're all speculating here, maybe it's time to consider some alternate realities for Dell. Could it be that rather than taking over a networking company Dell might be in the sights of someone who is already strong in networking but needs a quick shot of servers and storage? Someone like Cisco, maybe? The Register's Timothy Prickett Morgan laid out a good case for a Dell/Cisco merger recently, arguing that the combined companies would stand a greater change of peeling market share away from industry leaders HP and IBM. On the whole, it makes just as much sense as a Dell/Brocade union, but with all due respect to Timothy, do you think we would really end up calling the company "Disco"?

With the data center industry in such a state of flux right now, the chances for some major reshuffling are actually quite high. That's part of the reason why IT market analysts are starting to weigh in on some of the potential deals out there. At some point, someone's going to get it right and will then bask in the glory of their insight.

If anything, then, the Wall Street rumor mill is an indication that something big is going to happen in the near future.