Brocade's Networking Business: 5 Potential Buyers, 5 Companies Unlikely To Make A Play

Who Will Buy Brocade's Networking Business?

With Broadcom revealing plans to acquire Brocade and then divest its networking business, which includes Ruckus Wireless, analysts are closely examining who the potential buyer could be.

"Frankly, I think people would be surprised at how many interested buyers there are," one source familiar with the situation told CRN, who declined to be identified. "Those buyers are a mix of financial sponsors, so private equity companies and also strategic buyers. ... There is a very strong desire from all the parties – Brocade, Broadcom and any potential buyer – a strong desire to move as quickly as possible."

In a research note, RBC Capital Markets analyst Mitch Steves said the sale of Brocade's networking business come at a price tag of around $2.2 billion. Brocade's networking business is at an annual run rate of about $1 billion, while Brocade purchased Ruckus for $1.2 billion.

CRN breaks down the five potential buyers and the five companies that are unlikely to buy the Brocade business, according to analysts.

1. Potential Buyer: Dell

CEO: Michael Dell

Although Dell still has its hands full with its acquisition of EMC, analysts believe the Round Rock, Texas-based company could gain a competitive edge against Hewlett Packard Enterprise and Cisco Systems by buying Brocade's networking business. Zeus Kerravala, principal analyst at Westminster, Mass.-based ZK Research, said Dell's networking sales would get a shot in the arm from Brocade and Ruckus channel partners.

"Dell's always talking about competing better with HPE, except for networking. They have a little bit of networking from the old Force10 acquisition … but Brocade would be a really good addition there," said Kerravala. "There would be some channel reconciliation that would happen, although the Dell channel isn't a great networking channel. … Dell partners sell servers, PCs and storage, but not really networking. Brocade's channel would make a nice complement to what Dell already has."

2. Potential Buyer: Private Equity Firms

Analysts said one of the most likely outcomes is that a private equity firm acquires Brocade's networking business. Vendors and solution providers alike have recently been scooped up by private equity firms. Polycom, a unified communications and collaboration specialist, was purchased this year by private equity firm Siris Capital Group for around $2 billion, while security solution provider giant Optiv Security changed private equity hands Tuesday to KKR & Co.

Brocade and its channel partners would likely benefit from being acquired by a private equity firm, according to analysts.

"Going private equity, I think would be a good thing for [Brocade]," said Matthias Machowinski, networking and communications analyst for the research firm IHS.

"They could hunker down and since networking is changing and becoming a lot more virtual and agile, they can accelerate through that transition much faster if they don’t have to worry about reporting earnings to the street every quarter."

3. Potential Buyer: Arris Group

CEO: Bruce McClelland

Arris Group could be adark horse in the bid to buy Brocade's networking business, according to a research note by RBC Capital Markets' Steves.

The Suwanee, Ga.-based company could leverage Ruckus to sell wireless LAN equipment to its installed customer base, according to Steves, while Brocade's switches and routers would provide product diversity beyond its customer premises equipment.

4. Potential Buyer: Extreme Networks

CEO: Ed Meyercord

The San Jose, Calif.-based networking company recently purchased Zebra Technologies' wireless LAN business in an effort beef up its networking business and enter new vertical markets. Extreme Networks CEO Ed Meyercord is trying to build a bigger and broader company, which could be accomplished through Brocade, said ZK Research’s Kerravala.

"If you look at their strategy and what their CEO Ed Meyercord has told the street, they're trying to create a roll-up in the networking industry to create a bigger, more competitive vendor," said Kerravala. "This would be a case of the smaller company, buying a bigger company – so they would have to raise some money -- but there would be a case in bringing those together to create a bigger vendor that plays exactly into what they're trying to do."

5. Potential Buyer: Lenovo

CEO: Yang Yuanqing

If Lenovo wants to bet on the converged stack, analysts said Brocade's networking business would be a great fit for the Morrisville, N.C.-based vendor. Brocade and Lenovo already have an established OEM data center partnership.

"Lenovo understands the data center and you could bring Lenovo and Brocade-Ruckus together and create a nice converged solution," said ZK Research’s Kerravala. "Lenovo is definitely a possibility if they want to bet on the converged stack [market]."

1. Unlikely To Be A Potential Buyer: Huawei

CEO: Ren Zhengfei

It's highly unlikely that Chinese networking and telecom giant Hauwei could acquire Brocade's networking business even if it would give the company an entrance into the U.S. market, according to IHS’ Matthias.

"Hauwei would have to face regulatory challenges. Will the US government give a go-ahead for such a deal? I just don’t think so," said Machowinski. "And they already have all the products in-house … It would really be just about getting a foothold in the American market."

He also said Brocade's customers include top US government agencies, "so I think there would be a lot of opposition to Hauwei."

2. Unlikely To Be A Potential Buyer: Cisco

CEO: Chuck Robbins

Although there has been speculation that the San Jose, Calif.-based networking giant has tossed its name into the mix, analysts CRN spoke with don't think Cisco is a possibility.

"Cisco's not buying them -- that's ludicrous," said ZK Research’s Kerravala. "Cisco's not going to buy a Broadcom-based solution. They've got their own switching solution and, frankly, they don't need it."

In 2016, Cisco unveiled acquisitions of a total of seven companies ranging from security and cloud vendors to Internet of Things startups.

3. Unlikely To Be A Potential Buyer: Alcatel Lucent Enterprise

CEO: Jack Chen

Alcatel Lucent Enterprise is another large vendor that has been rumored to have thrown its hat in the ring to acquire Brocade's networking business. IHS’ Machowinski said the company is an unlikely buyer due to it already owning a similar product portfolio and already established technology partnerships to fill in any gaps.

"[Alcatel Lucent Enterprise] has the wired product in-house and they do have a relationship with HPE-Aruba [Networks] on the wireless side and are also now developing their in-house wireless networking assets," said Machowinski. "I could see maybe someone like a Nokia being interested in the wireless assets, but not really Alcatel Lucent Enterprise."

4. Unlikely To Be A Potential Buyer: Juniper Networks

CEO: Rami Rahim

Juniper Networks unveiled a trio of acquisitions in 2016 including December's acquisition of cloud optimization service specialist AppFormix for an undisclosed amount. Analysts said Juniper is likely out of the Brocade acquisition picture because the Sunnyvale, Calif.-based vendor builds its traditional networking technology in-house and there's little room to innovate through Brocade's portfolio.

"Juniper's put a lot of investment into their own fabric. It would seem that the Brocade VDX would be very cannibalistic in that," said Kerravala. "I just don't see a good, forward play for Juniper here."

5. Unlikely To Be A Potential Buyer: Arista Networks

CEO: Jayshree Ullal

Analysts said fast-growing networking vendor Arista Networks simply doesn't need Brocade-Ruckus as it strives to become a data center pure-play company.

"Arista is fast-tracking to be the de facto standard alternative to Cisco in the data center," said Kerravala. "It wants to be a data center pure-play. … By acquiring Brocade, they would break from that mission because they would take the wireless stuff, also Brocade has some campus switching, some Layer 4 through 7 [offerings] and I think it would deviate from the data center mission they've been talking about."