In the high-tech vendor world, oftentimes acquisitions can be exciting for customers. When related technologies come together, it can create unique opportunities to blend products, simplify procurement, and collapse support and services contracts under a single supplier. But when assets are sold under duress, the outcomes can be more uncertain.
Broadcom acquires Brocade, then sells to Extreme.
As most of you know, Broadcom entered into an agreement to purchase Brocade for $5.9B. And just a few weeks ago, Broadcom has announced that it has reached a deal to sell Brocade’s data center routing and switching business to Extreme for $55M.
Extreme’s buying spree.
Extreme has actually been on a bit of a buying spree lately. In early March, they announced their intent to acquire part of Avaya’s troubled business for $100M. And, shortly before that, Extreme agreed to purchase Zebra’s WLAN business for $55M. And now they’re buying Brocade’s data center business, which includes the Foundry assets that were acquired for $3B in 2008. The fact that the deal also includes subsequent Vistapoint and StackStorm acquisitions, all at less than 2% of the original Foundry price, suggests that this was a sale under duress, as well.
How will Extreme integrate three acquisitions at once? Extreme’s business strategy here is interesting. They appear to be trying to push their revenue up over the $1B threshold after having hovered just over $500M the last couple of years (and down year-over-year).
More interestingly, Extreme has not been profitable since 2013. Having hit an EPS low of $-0.72 in 2015, they have begun to rebound ($-0.31 in 2016 and $-0.14 so far in 2017).
While the revenue should help drive top-line results, it’s hard to see how they will manage EPS to become a more profitable business. It seems at least plausible, if not likely, that Extreme will need to right-size the acquired teams to fit their profitability models and continue their march towards positive EPS.
When is a roadmap not really a roadmap?
If the development teams are impacted by any right-sizing, the question for many former and current Brocade customers is this: has the roadmap shifted from promise to compromise?
At best, managing a trio of complex integrations is extremely complicated. More likely, I suspect, the teams lose focus, and the roadmap changes. At worst, retention becomes difficult and entire product plans have to be re-evaluated for what’s possible under new operating conditions.
This kind of disruption hits at a particularly difficult time for Brocade customers. Many had bought into a proprietary layer-2 fabric built using ASICs designed by the SAN team (which is still a part of Broadcom). The next-generation platforms had already moved from layer-2 fabric to layer-3 fabric, leaving the upgrade path from their flagship VDX products in question. Tougher still, the next generation of products are new hardware platforms featuring new merchant silicon running a new operating system.
This transition could be particularly painful for customers. Stabilizing new platforms is difficult when changing only one major component. Changing three and then transferring ownership while right-sizing the business?
Juniper Networks as an alternative.
Juniper has always challenged the status quo from its founding. Our mission is to help our customers grow and reap the rewards of IT agility, a mission that becomes more important every day with the rise of the cloud and the disruption that everything digital brings. We believe wholly in our mission, and we are committed to helping customers navigate uncertain times. We are uniquely positioned to help companies work through changes in their own operating scale, changes in technology, and even changes in their vendors.
Built on a carrier-grade operating system, running on the highest-performing platforms on the planet, our solutions are proven worldwide. We have designed our solutions with automation in mind. And we have built a robust services and support organization that can help drive migrations.
If companies find themselves in uncertain times, they are likely best served by falling back to certain strength. Here’s how to ensure your networking infrastructure is prepared for whatever comes next.