- Broadcom will become storage area networking leader with premium-priced deal
- Will offload IP switches and routers, and nascent wireless platforms including Ruckus
- Is this the chance Juniper needs to bolster its MNO offering against Cisco?
Broadcom is appearing on the M&A lists again, thanks to its $5.9bn acquisition of Brocade, a manufacturer of networking equipment and storage infrastructure. The move is a definite expansion for Broadcom, but the new company will be shedding WiFi service provider Ruckus Wireless, which Brocade acquired earlier this year for $1.2bn.
As well as Ruckus, Broadcom (itself recently acquired for $37bn by Avago, which then took the US company’s name) will also look to offload data center switching, routing, and software offerings – es-sentially its whole IP networking business. This leaves Broadcom with the core fiber Storage Area Networks (SAN) components, which does not look as lucrative as that IP networking division but is core to Broadcom.
Broadcom looks beyond chips to systems:
Broadcom has four reportable segments in wired infrastructure, wireless communications, enterprise storage and industrial, and the bulk of its storage chip business comes from Avago’s acquisi-tion of LSI in 2014 for $6.6bn. Fiber SAN currently accounts for about half of Brocade revenues, but the IP Networking division was on track to eclipse it.
The deal indicates a move by Broadcom to expand beyond chips into the more profitable areas of boards, systems and services, as it takes on a systems business for the first time.
The value of that strategy is reflected in the fact that Broadcom paid a 47% market premium to secure Brocade – based on the price last week before the rumors of acquisitions began swirling. Broadcom CEO Hock Tan argued that “with deep expertise in mis-sion-critical storage networking, Brocade increases our ability to address the evolving needs of our OEM customers. In addition, we are confident that we will find a great home for Brocade’s valuable IP networking business that will best position that business for its next phase of growth.”
This is typical behaviour by Avago/Broadcom, which has often made acquisitions and then sold on the parts which did not fit with its corporate vision. Notably, Broadcom offloaded its low power wireless assets (the IoT-focused WICED division) to Cy-press for $550m, not long after the Avago buyout. Another exam-ple was Avago’s acquisition of LSI, and the prompt sale of much of its portfolio to Seagate and Intel.
Perhaps the Brocade IP products – and the strong play Brocade was making in HetNet wireless with its Ruckus and virtualized packet core platforms – were too far from the core strategy, even if Fiber SAN itself seems quite a stretch for this increasingly di-versified chip company. Broadcom’s NetLogic Microsystems es-tablished it in chips used in switches, routers, and wireless base stations, embedding it into a business which supplied companies like Alcatel-Lucent, Cisco, Ericsson, Huawei, Juniper and Nokia to name but a few.
This is an abstract of the original article from the wireless watch service. Learn More
