There are rumors that Dell (
) could look to acquire Brocade Communications Systems (
), one of the leading suppliers of data center networking products,
in an attempt to expand presence in servers, storage and networking
space and better compete with other industry giants like EMC (
), Hewlett-Packard (NYSE:HPQ) and IBM (NYSE:IBM). This move would
be in line with Dell's strategy of diversifying its product and
services portfolio and moving further from its core PC business
where the firm has been bleeding market share for the past couple
The rumor has been fueled by Dell's recent filing for shelf
offering of $3.5 billion as the acquisition would require that Dell
shell out as much as $4 billion or even more for Brocade, which is
currently valued at $3.7 billion.
The addition of this business would complement Dell's existing
servers & networking business that accounts for about 14% of
$20 Trefis price estimate for Dell
, which is about 25-30% above the stock's market price.
Brocade's SAN Switching Market Leadership….
Brocade makes fibre channel switches and related software for
connecting corporate storage systems and servers. Brocade's
products are used in storage area networks (SANs), which pool
storage resources across enterprises for easier management and
efficient asset utilization.
Brocade holds more than 70% of storage area network (
) switching market and has presence in about 80% of data centers
worldwide, an area where Dell has been pressing hard to gain
prominence as it makes a shift to cater to the enterprise market.
Dell Targets High Growth Storage Market
Provides Cross Selling Opportunities to Dell
Brocade's large storage switching installed base will allow Dell
access to more data center accounts providing significant
opportunity for cross selling servers, storage and services.
We currently forecast Dell's networking revenues to increase
from an estimated $1.2 billion in 2010 to over $1.6 billion by the
end of our forecast period. This could change significantly if Dell
acquires Brocade - which had over $2 billion in revenues in 2010.
Also if Dell is able to push its server sales as a result of the
acquisition, it will make the servers & networking business
segment more valuable than the PC business (notebooks,
netbooks & desktops combined) for Dell.
Integration Could be Tricky
In the past, Dell has acquired high growth companies with
innovative technologies but limited reach due to their size, and
then Dell benefit from using its distribution capabilities. We note
that the Brocade acquisition, if completed, would mark a shift in
this strategy. Brocade has a large presence among data centers to
sell its own products and its integration could be one area of
difficulty for Dell.
While an ambitious deal, it will be interesting to see whether
the acquisition helps Dell grow or leaves it at strategic
See our full analysis of Dell