GARP Research Drops Coverage on Brocade (BRCD); Acquisition Chatter May Hurt Employee Morale & Potential Business
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Price: $12.73 --0%
Rating Summary:
4 Buy, 22 Hold, 2 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 8 | Down: 5 | New: 26
Rating Summary:
4 Buy, 22 Hold, 2 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 8 | Down: 5 | New: 26
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GARP Research & Securities drops coverage on Brocade (Nasdaq: BRCD) (from a Buy rating).
Analyst, Seth Dadds, said, "We upgraded shares of Brocade in September 2008 following the acquisition of Foundry Networks. We felt the company had a good shot of translating its success in SAN storage to the ~$20 billion Ethernet networking space. We’ve been wrong. The Foundry Ethernet business (30% of total) has struggled and may not turn profitable until FY13 according to our estimates. The Ethernet products have failed to gain critical mass with OEMs such as HP (NYSE: HPQ), Dell (Nasdaq: DELL), and IBM (NYSE: IBM) — a key reason behind our 2008 upgrade. Since then, HP has acquired 3COM, Dell acquired Force10, and IBM seems to be more entrenched with Juniper. On the flip side, Brocade’s core SAN storage business (~70% market share) has exceeded our expectations. Most recently, the company reported surprisingly robust 16G sales, a good sign it will maintain leading share during this new product cycle ramp. However, the continued success in the mature Fibre Channel business may not be enough to offset Ethernet headwinds over the long-term."
"According to a Reuters article published January 9th, Brocade hired an investment banking firm in November 2011 and has since received several bids from private equity firms. We have no knowledge of any offer outside the Reuters article. However, since the early results of the process have been leaked, we suspect Brocade may be trying stir more interest in an attempt to receive a better offer, which suggests a deal won’t happen overnight. A protracted sale process could hurt employee morale, and may prompt customers (concerned with vendor support and continuity) to think twice before choosing Brocade’s networking solutions."
Analyst, Seth Dadds, said, "We upgraded shares of Brocade in September 2008 following the acquisition of Foundry Networks. We felt the company had a good shot of translating its success in SAN storage to the ~$20 billion Ethernet networking space. We’ve been wrong. The Foundry Ethernet business (30% of total) has struggled and may not turn profitable until FY13 according to our estimates. The Ethernet products have failed to gain critical mass with OEMs such as HP (NYSE: HPQ), Dell (Nasdaq: DELL), and IBM (NYSE: IBM) — a key reason behind our 2008 upgrade. Since then, HP has acquired 3COM, Dell acquired Force10, and IBM seems to be more entrenched with Juniper. On the flip side, Brocade’s core SAN storage business (~70% market share) has exceeded our expectations. Most recently, the company reported surprisingly robust 16G sales, a good sign it will maintain leading share during this new product cycle ramp. However, the continued success in the mature Fibre Channel business may not be enough to offset Ethernet headwinds over the long-term."
"According to a Reuters article published January 9th, Brocade hired an investment banking firm in November 2011 and has since received several bids from private equity firms. We have no knowledge of any offer outside the Reuters article. However, since the early results of the process have been leaked, we suspect Brocade may be trying stir more interest in an attempt to receive a better offer, which suggests a deal won’t happen overnight. A protracted sale process could hurt employee morale, and may prompt customers (concerned with vendor support and continuity) to think twice before choosing Brocade’s networking solutions."
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