Acquisitions quadruple size of Brocade’s market

Executives of Brocade Communications Systems Inc. say their acquisition strategy has given the company access to an estimated US$7.2 billion market in 2008 for its storage hardware, software, and services technology, four times the market it serves today.

Brocade’s core market of Fibre Channel connections for storage area networks (SAN) is estimated at $1.8 billion for 2007. But acquisitions this year of companies such as McData Corp. and Silverback Networks Inc., as well as prior deals, give it access to a $5.4 billion market this year and a larger one next, executives said at a day-long briefing for press and analysts Thursday in the company’s headquarters city of San Jose, California.

New areas in which Brocade can now compete include SAN extension and routing capability, 10-gigabit Ethernet data center connectivity, and storage management services, Brocade executives said. Brocade also gains access to high-end enterprise customers and users of mainframe computers, which are markets that McData served. Brocade completed its $973 million all-stock deal for McData Jan. 29.

Market opportunities also grow organically as the “digital universe” grows, said Michael Klayko, CEO of Brocade. The total amount of digital data created, captured and replicated globally is expected to grow sixfold to 988 exabytes in 2010, from 161 exabytes in 2006, he said, citing IDC research. An exabyte is 1 billion gigabytes.

But the biggest opportunity that opens up for Brocade is in file-area networking (FAN), or the organization of “unstructured data.” This includes disparate Word files, e-mail messages, digital slide presentations and other files that are not well organized on most networks.

“Most companies have no policy management systems in place for managing file growth. It’s an enormous problem as well as an enormous opportunity,” Klayko said.

Brocade’s file data management solutions include data consolidation and migration, business continuity and disaster recovery, information lifecycle management and security and compliance.

Brocade’s legacy storage products move blocks of data, such as in databases, with a variety of storage directors, which are appliances that house a number of switches to move data between servers and storage.

Brocade’s acquisitions will give it an advantage over rivals, including Cisco Systems Inc., said Brian Babineau, senior analyst at Enterprise Strategy Group, a storage industry research firm.

For example, the 2006 acquisition of NuView Inc. for $60 million brings a key FAN software tool into Brocade’s arsenal, Babineau said.

Brocade’s annual revenue is $804.7 million, not including McData. Competitor QLogic Corp. brings in $570 million, and Emulex Corp.’s revenue is $411.9 million, according to 2006 data from Hoover’s Inc.

But Brocade’s most formidable competitor is Cisco. Storage only makes up a small portion of its $32 billion annual revenue, but its position as the dominant enterprise networking vendor gives it selling power. Babineu said Brocade competes with Cisco on the strength of its storage expertise and dedicated R&D.