Calling It: Dell Acquires Brocade

Paul Mansky of Canaccord Adams published report on Wednesday titled "Dell Looks Poised for a Networking Move." In the report, Mansky establishes the motive for Dell acquiring a networking vendor when he says, "With the acquisitions of EqualLogic, Perot and Compellent (among others), Dell now has a beach head in three of the four primary layers of this stack--storage, servers and services. Networking is the one crucial piece that is missing."

Mansky then singles out Brocade as the target. "We view Brocade as the most likely target for myriad reasons. First is the absence of alternatives. Juniper is 80% service provider--not Dell's business--and Extreme and Force10 carry insignificant share. Second, Brocade's Fibre Channel business should be an attractive cash engine for at least five years."

After talking to various people in the industry, my casual interest in the speculation in this report turned into a firm belief that it's happening now. First, industry insiders are claiming to have heard about the deal. Second, the company has implemented dramatic expense reductions, which look suspiciously like the actions of a company preparing to be acquired. Third is timing. The Dell Storage Forum is going on next week in Orlando. This end user forum would be a perfect venue to announce the acquisition.

If it happens, a Dell acquisition of Brocade will ripple through the industry. Here's what I would do if I was the CEO of these companies:

My hat is off to Dell. Brocade has by far the broadest portfolio of leading-edge products, making it the jewel among independent, pure-play data center networking vendors. The addition of the Brocade product line does more than fill a piece of the puzzle. This acquisition immediately propels Dell into the leadership tier of cloud stack and enterprise networking providers.