\u00a0 While Cisco already has a Fibre Channel over Ethernet (FCoE) switch shipping today, the Cisco Nexus 5000, Brocade has nothing to offer and needs to play catch up. It takes tremendous amount of investment and R&D to bring an FCoE capable switch to the market.<\/p>\n The FCoE market opportunities for Brocade will be large and of high strategic importance. Early dominance of market share could expand to a long-term leadership position in the evolving SAN market.\u00a0 This is possible because FCoE is clearly a disruptive technology, one that could change the underlying SAN infrastructure, business models, and, as a consequence, major players servicing and driving the industry. <\/p>\n<\/p>\n Brocade is the leader in data storage networking in data centers with significant technology, product, distribution and installed base advantages.\u00a0 Foundry is the leading innovator in data networking for enterprises and service providers, including performance leadership in the emerging 10GigE market.\u00a0 With Brocade\u2019s strengths in Fibre Channel technology and data storage and Foundry\u2019s strengths in networking and Ethernet technology, Foundry is complementary to Brocade, not redundant.\u00a0 <\/p>\n By combining, they will be a bigger, stronger company with additional diversification, technical IP, increased R&D and economies of scale.\u00a0 They will be able to provide leadership across the breadth of the networking industry and their combined strengths will play to where the market is heading \u2013 highest performance and reliability, new and converged technologies. <\/a><\/p>\n <\/a> <\/p>\n The Brocade, Foundry Networks merger will allow the two companies to develop a Data Center switch capable of meeting the needs of a converged network and tackling Cisco\u2019s emerging threat in the data center space. <\/a><\/p>\n <\/a> <\/p>\n Table 1: Brocade and Foundry Networks Product Synergies<\/em> <\/p>\n<\/p>\n Brocade\u2019s storage area network expertise can be leveraged against Ethernet based networking expertise from Foundry Networks to develop the next generation Data Center switch capable of competing against Cisco Systems. <\/a><\/p>\n <\/a> <\/p>\n Brocade has fared quite well internationally while Foundry’s success has come from domestic sales, such as those to the federal government. Brocade has relied mainly on OEMs to move its gear while Foundry’s focus has been on direct sales and channel partners. From the marriage then comes a more rounded supplier. <\/a><\/p>\n <\/a> <\/p>\n Brocade\u2019s investment in R&D as percentage of sales has been declining year over year although its spending is still higher than the industry averages.\u00a0 At the same time Brocade has seen rather steep erosion on its gross margins as a percentage of sales. Brocade will face challenges going forward as reduced R&D spending and declines in gross margins will seriously undermine its position to meet growth with its current portfolio of products.\u00a0 <\/a><\/p>\n <\/a> <\/p>\n <\/em><\/p>\n<\/p>\n<\/p>\n<\/p>\n Figure 1: Brocade Spending vs. Industry Averages (% of Sales)<\/em> <\/p>\n Foundry Networks enjoys a healthy gross margin on its sales, better than the industry average. The gross margins have remained steady and improving, a significant indication of Foundry\u2019s successful product line. The high sales and marketing costs are an area that can be optimized.<\/p>\n <\/em><\/p>\n <\/em><\/p>\n Figure 2: Foundry Networks Spending vs. Industry Averages (% of Sales)<\/em> <\/p>\n A merger between Foundry Networks and Brocade will allow both companies to realize economics of scale in Sales and Marketing costs. The combined entity will further boost Brocade\u2019s revenues by offering end-to-end data networking and storage solutions. <\/p>\n Brocade\u2019s storage area network expertise can be leveraged against Ethernet based networking expertise from Foundry Networks to develop the next generation Data Center switch capable of competing against Cisco Systems.<\/p>\n![\"ConvergedDataCenter\"](\"http:\/\/lh5.ggpht.com\/_rAqHikz3Ipg\/SuE9uPnj6rI\/AAAAAAAAAII\/J3tx6YgQlJc\/s1600-h\/ConvergedDataCenter%5B5%5D.gif\" "\\"ConvergedDataCenter\\"")
<\/a> <\/p>\nSynergies: <\/strong><\/h5>\n
Brocade and Foundry Networks: Product Synergies<\/h5>\n
<\/a> <\/p>\nBrocade and Foundry Networks: Channel Synergies<\/strong><\/h5>\n
Brocade and Foundry Networks: Cost Synergies<\/strong><\/h5>\n
<\/a> <\/p>\n<\/a> <\/p>\nBrocade\/Foundry Combined Strengths:<\/strong><\/h5>\n<\/p>\n