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Brocade buys Foundry Networks for $3bn

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Brocade is to acquire Foundry Networks for $3bn in cash and stock. The storage networking vendor has secured a $1.5bn debt facility from Bank of America and Morgan Stanley to grease the purchase.

The company says the acquisition will be accretive to Brocade's non GAAP earnings in fiscal 2009. In other words, there are cost savings to be made. Also, Foundry is a more profitable company. Last year it posted $607.2m sales and $81.1m income. Brocade, about twice the size with $1.2bn in revenue, produced profits of $76.9m.

That's the financials out of the way: so why is Brocade willing to take on so much debt to get Foundry? Cisco, in a word. The world is going data centre-crazy and right now, only Cisco can supply all the data networking equipment that these power-guzzling factories need.

With Foundry under its belt, Brocade thinks it can also play credibly end-to-end. In interviews yesterday. Marty Lans, a Brocade marketing veep, said Foundry brought Ethernet products to its table.

So the companies have the technology to take on Cisco. But they have an awful long way to go to match them on sales. Foundry took two per cent of the market for Ethernet switches in 2007, against Cisco’s 71 per cent.

So the Brocade-Foundry tie-up looks defensive as much as anything else. As Dell-Oro analyst Alan Weckel told AP, Cisco has “been advocating that the Fibre Channel and Ethernet technologies themselves should be merged somewhat - a direct assault on the core business of Brocade and Foundry Networks”.

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