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Brocade's Foundry deal boosts its data center play, but Cisco is ready

Brocade's acquisition of Foundry Networks for $3 billion puts it in a position to compete with Cisco Systems in the data center networking space. But experts say Brocade will need to get everything right to make it work.

Brocade's $3 billion deal to buy Foundry Networks will help it stake out a spot as the No. 2 vendor in the data center networking market. But now it's going head-to-head with Cisco Systems, one of the most dominant companies any industry has ever seen.

"While it's the right thing for Brocade to do to make a move in the Ethernet space, I find it hard to believe that Cisco would be too nervous from this deal," said Andrew Reichman, senior analyst with Forrester Research. "It is likely to help Brocade remain a viable competitor in a two-company battle, but it's not likely to dramatically change the balance of power in that battle."

Brocade, the leader in storage networking technology, announced its acquisition of Foundry on Monday night. With $607 million in revenue in 2007, Foundry is a profitable but small player in the LAN Ethernet switching market. Its customers are generally very large enterprises and service providers.

The deal was made with an eye to the future. Analysts have predicted that companies will begin moving toward a unified fabric in their data centers within a couple years. Converged Ethernet, or data center Ethernet, is the medium for that unified fabric. Still in the standardization stage, this technology will allow companies to run all forms of connectivity in the data center on Ethernet, eliminating the need for other forms of connectivity, such as Fibre Channel, Brocade's bread-and-butter technology.

This consolidation onto Ethernet will simplify operations and allow companies to reduce the amount of infrastructure they have in their data centers. Cisco has responded to this trend by including converged Ethernet capabilities in its new family of Nexus switches introduced earlier this year.

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Marty Lans, Brocade's senior director of product management for data center infrastructure, said this coming trend was a major impetus for the Brocade-Foundry deal.

"Historically, Brocade has focused on the storage-to-server market through Fibre Channel," Lans said. "We pretty much dominate that market. What this Foundry acquisition allows us to do is branch out into the other side of the data center and hit everything, like wiring closets and application switching."

Brocade announced its DCX Backbone switch earlier this year. That product serves as a standard Fibre Channel SAN switch, but it's also capable of connecting with emerging protocols such as Fibre Channel over Ethernet (FCoE) and converged Ethernet. Observers say that the product positions Brocade as a vendor that is poised to move into Ethernet switching in the data center, but overall its portfolio of products in that area is rather thin. The Foundry deal clearly fills out that product portfolio.

"Brocade has been a leading proponent of FCoE but has little capability in the other protocols and also has little credibility in the Ethernet switching realm, which will be critical to this convergence," Reichman said. "Cisco obviously has far more credibility in Ethernet and has built significant competence in Fibre Channel over the last several years. This move will help Brocade position [itself] as more capable in Ethernet switching and remain relevant in data center switching as it moves more toward convergence on Ethernet."

Reichman is reasonably positive on the acquisition. "But I don't know if it's enough," he said. Brocade has been losing ground to Cisco in storage networking in recent years, so it needed to expand its business to offer a full line of data center technologies. Juniper Networks, a much more powerful player in service provider networking and routing that has recently moved into Ethernet switching, might have been a better fit for Brocade, Reichman said, "but they just couldn't afford them."

"I think maybe this helps them tread water and moves them in the right direction," he said. "But Cisco is not worried."

Brocade is reacting to the encroachment of Ethernet in the storage networking realm, according to Abner Germanow, senior research director at IDC. "They're hedging on the decline of Fibre Channel and the rise of Ethernet."

Foundry is a niche player in the Ethernet LAN market, Germanow said. But the company is also very well run and profitable and has found success in high-end data centers.

"This is a battle for the data center, a battle for the single fabric in the data center," he said. "It's very clearly a strategy that's set up to take on Cisco on a number of different fronts."

"I think they have a lot of the technology they need to succeed, but there are some customer and channel challenges that they need to figure out," Germanow said. "The ability of Foundry to go out and sell Brocade solutions to [its] customer base and vice versa is still a big question mark. That's the big challenge. Today, storage and networking people sit on different sides of the fence, and that fence is the server."

Brocade's history of success in selling to storage networking pros will not help them here, Germanow said. Instead, Brocade will have to find a way to sell products to data center architects.

"Their ability to craft a message that resonates with those data center architects -- and to craft products that support the goals of those data center architects – that's going to be what they spend the next year building," he said.

Let us know what you think about the story; email: Shamus McGillicuddy, News Editor

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