Broadcom will leverage Brocade's Fibre Channel switches to complete its storage network business and will sell the latter's Ethernet services for an estimated $1 billion to $2 billion. ..
Broadcom CEO Hock Tan once again plans to build a compelling new company with his superb acquisition skills as a semiconductor company executive with a private equity approach – he plans to buy Netcom equipment operator Brocade for $5.9 billion, possibly Incentives have broken more similar transactions between semiconductor suppliers and system manufacturers, and this move is expected to extend the life of the mature Fibre Channel market, raise its price, and reverse the Ethernet market.
Under the agreement, Broadcom will use Brocade's Fiber Channel switches to make its storage network business more complete, and will sell the latter's Ethernet services at an estimated $1 billion to $2 billion; system-level switches are expected to add to Broadcom. Nearly $1 billion in annual revenues will increase its overall profit margin by 5%.
Broadcom has been operating Ethernet and fiber-optic tunnel server cards for some time. The acquisition of Brocade will allow Broadcom to enter the system product market for the first time, with service and support; board, system and service businesses are attractive Because it can bring better profit margin than the chip.
Tan said in a conference call with financial analysts that there will be only a little competition between the acquisition and the original customer such as Cisco; Cisco is the only major manufacturer of large-scale Fibre Channel switches on the market, mainly selling products directly. For end users, Brocade customers are usually system vendors such as Dell and HP Enterprise. According to a Cisco engineer, the company's Fibre Channel chips are self-developed, but a small amount is sold to system vendors.
"We think our original customers are strategic partners and we don't want to compete with them;" Tan said in a conference call that he will work with Brocade to immediately begin the process of selling its Ethernet business unit.
Although both Brocade and Cisco sell Fibre Channel switches to value-added resellers, Alan Weckel, vice president of market research firm Dell'Oro Group, said the market overlap is small and new uses in the market Not many of the existing users are usually not Cisco or Brocade's loyal customers, and the two suppliers include most of the market share.
Weckel said: "This is not like the basis for Broadcom to attack Cisco. This is not the way the Fibre Channel market has beenhave since 2008." The bad news for Fibre Channel users is that Broadcom may find existing optical communication modules. With the innovative approach to price increases, server boards and next-generation switches, Avago did the same thing when it bought network card maker Emulex for $606 million last year.
Other vendors will face pressure from Broadcom's acquisition of Brocade, including Cavium, which has acquired QLogic's storage network business but lacks Fibre Channel switch products, and Atto Technologies, a smaller company.
Brocade's Fibre Channel Switch will add a system product line to Broadcom beyond storage chips and boards (Source: Broadcom)
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