Analyst warns of overlap in Brocade’s McData buy

Too many common customers and products, says researcher

Storage switch vendor Brocade is buying comeptitor McData in an all-stock transaction valued at US$713 million (NZ$1.15 billion).

Brocade chief executive Michael Klayko says the combined companies will be able to develop the “next-

generation datacentre”, offering a unified platform with interoperability in the near-term and convergence in the long-term that will protect existing user investment. The converged platform will come out in the next technology cycle, which is slightly more than a year away, says Tom Buiocchi, Brocade’s vice president of marketing.

Klayko says there will be layoffs as a result of the merger, but won’t specify how many. McData head John Kelley was listed as a post-merger “advisor” in the media release about the transaction.

The remainder of Brocade’s executive management team will continue to serve in their roles. McData will become a wholly owned subsidiary of Brocade. The acquisition is expected to be completed in McData’s first fiscal 2007 quarter, after shareholder and regulatory approval.

Both companies have been operating under something of a cloud; former Brocade chief executive Gregory Reyes is in the midst of a criminal hearing arising from investigations into alleged stock-option manipulations, while McData has been losing market share, says Mark Kelleher, an analyst with stock research firm Canaccord Adams, who was not upbeat about the acquisition.

“There is a complete overlap in products and customers,” Adams says. “It looks like you’ve got one company doing very well, one company that’s stumbling, and if you’d waited a couple of quarters you might have had that market share anyway.”

McData said in mid-July that it was planning to announce a product strategy that makes it easier for organisations to centralise remote storage needs and perform tasks such as backup and electronic discovery.

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