Yet another blockbuster merger has been announced in the enterprise technology sector this week, with semiconductor maker Broadcom announcing today that it has agreed to acquire Brocade Communications Systems, the enterprise networking solutions company, for $5.5 billion, plus an additional $400 million in assumed debt.
The merger between chipmaker Broadcom and Brocade, which builds routers, switches, and other equipment for computer networks, is only the latest in a series of mergers this year that has transformed the landscape of enterprise technology providers. On Monday, for example, enterprise Internet service providers CenturyLink and Level 3 entered into an agreement for a $25 billion merger focused on providing better fiber connectivity for enterprise networks.
Integrating Storage Networking
And it has been only about a year since Avago Technologies acquired Broadcom in a $37 billion deal in which Avago decided to keep Broadcom's name on the building. Today’s deal represents something of a vertical consolidation of the networking sector, since Broadcom makes many of the semiconductors that act as components in Brocade’s networking equipment.
“This strategic acquisition enhances Broadcom’s position as one of the leading providers of enterprise storage connectivity solutions to OEM customers,” said Hock Tan, Broadcom's president and CEO, in a statement announcing the deal. “With deep expertise in mission-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.”
Divesting Brocade's IP Networking Business
Broadcom said it plans to divest Brocade’s IP networking business, consisting of wireless and campus networking, data center switching and routing, and software networking solutions. That would leave Broadcom with Brocade’s Fiber Channel storage area network (FC SAN) switching business that produces networking products used in enterprise data centers.
“Our best-in-class FC SAN solutions will help Broadcom create one of the industry’s broadest portfolios for enterprise storage,” said Lloyd Carney, Brocade's CEO, in the statement. “We will work with Broadcom as it seeks to find a buyer for our IP networking business which includes a full portfolio of open, hardware and software-based solutions spanning the core of the data center to the network edge.”
In part, the divestiture will help offset the cost of Broadcom’s acquisition, although that isn’t the only reason Broadcom plans to divest the IP networking business. According to a blog post by Carney, Broadcom is also doing so to avoid creating a competitive overlap with some of its most important clients such as Cisco, Intel, and Hewlett Packard Enterprise.
“We have built an attractive IP networking portfolio, designed to enable customers to transform their networks into platforms for innovation,” Carney said. “As we support Broadcom in its efforts to find a buyer, our goal is for the IP Networking business to continue to thrive and see to fruition its strategic vision.”
Both companies said they expect the deal to close sometime during the second half of Broadcom’s 2017 fiscal year.