Brocade (NASDAQ: BRCD) and NetApp (NASDAQ: NTAP) once again found themselves at the center of takeover speculation today.
If either company is acquired, it would be the latest in a very active year for data storage M&A, which has already seen Oracle (NASDAQ: ORCL) buying Sun Microsystems (NASDAQ: JAVA), EMC (NYSE: EMC) winning Data Domain in a bidding war with NetApp, and Broadcom (NASDAQ: BRCM) and Emulex (NYSE: ELX) engaging in a nasty (and ultimately unsuccessful) takeover battle.
A Brocade deal could come less than a year after the storage and Ethernet networking vendor acquired Foundry Networks in a direct challenge to Cisco Systems (NASDAQ: CSCO), as the two storage switch leaders prepare for a new era of SAN-LAN convergence.
HP (NYSE: HPQ) and Oracle may be considering acquiring Brocade, while Stifel Nicolaus analyst Aaron Rakers said IBM (NYSE: IBM) and Juniper (NASDAQ: JNPR) are other possible acquirers. The WSJ said no deal is imminent and Brocade may decide not to sell the company, but Rakers said HP makes the most sense as an acquirer because of its ProCurve networking business.
HP and IBM have another reason to consider a Brocade acquisition, after Cisco's entrance into the server market earlier this year alienated the server market leaders.
Enterprise Strategy Group senior analyst Brian Babineau said the timing of a potential deal is interesting.
"First, they have pretty much finished the Foundry acquisition, making it easier for a buyer to digest them as a whole," said Babineau. "Second, the server vendors are looking for a fight against Cisco, given that they are now a competitor, and one way to do that is to get in the network business. Third, IT will transition to larger IP networks (10GbE) and advanced Fibre Channel networks (FCoE) as they get more budget resources.
"A market in transition, a good now complete product portfolio, and interested buyers can create a compelling event," he concluded. "That being said, all of those things apply even if Brocade doesn't sell, giving them the best of both worlds."
Wedbush Morgan analyst Kaushik Roy said an HP or Oracle acquisition could hurt Brocade's sales and send more business to Cisco and Juniper. "If BRCD were to be bought by one of these OEMs, the buyer would lose revenues from competitor OEMs such as EMC, IBM and DELL," Roy wrote in a research note today. "In such an event, EMC will very likely move towards selling more CSCO on Fibre Channel products instead of BRCD. IBM may align itself with JNPR on Ethernet products. Therefore the buyer of BRCD would, in reality, be paying a higher multiple based on a 'lower' forward revenue/EPS estimate."
Roy suggested that Juniper acquire QLogic (NASDAQ: QLGC) to get ready for the emerging FCoE market.
But R.W. Baird analyst Jayson Noland sees an HP-Brocade combination as potentially powerful. "We believe the rumored HPQ acquisition of BRCD would have a negative longer-term impact on CSCO's and JNPR's market share in switching and routing," he wrote. "The combination would create a more serious high-end alternative to CSCO and have a more comprehensive product offering than JNPR's Enterprise portfolio."
NetApp Views Merger More Favorably
While the Brocade news appears to have some substance, the NetApp news appears to be more of a softening in stance between new CEO Tom Georgens and his predecessor, Chairman Dan Warmenhoven.
"This is America, and everything has its price," Georgens told Barron's. "At some point, it might make sense."
The article said HP could be a possible acquirer of NetApp and the company has its eye on the data storage market after luring away EMC storage chief David Donatelli earlier this year.
Stay tuned. It's been a tumultuous year in the data storage industry, and it's not over yet.
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