Brocade In Ethernet Infrastructure OEM Deal with IBM

| Apr 28, 2009 | Enterprise Network Systems | Competitive Intelligence Report

| Analyst: Bill Terrill

Current Perspective: Very Positive
Vendor Importance: Very High
Market Impact: High

Event Summary

April 28, 2009 –- Brocade announced that IBM will rebrand and sell Brocade's enterprise IP networking family of products through IBM’s global sales force and authorized business partners. This amended OEM agreement complements and extends the existing, decade-plus relationship between Brocade and IBM in the storage area networking (SAN) market. Today's amended agreement strengthens and further diversifies Brocade's go-to-market routes for its enterprise IP networking portfolio.

Analytical Summary

• Current Perspective: Very positive on Brocade’s agreement to OEM its Foundry network infrastructure equipment to IBM because this will greatly expand Brocade’s reach within the enterprise networking systems worldwide. By winning this business from IBM, Brocade extends its partnership beyond Fibre Channel and storage networking areas and now has a major vendor and marketing partner with existing penetration in virtually all large enterprise data centers. This partnership provides Brocade with significant sales and marketing opportunities through IBM and its own channels as its visibility within corporate IT departments will be dramatically enhanced.

• Vendor Importance: Very high to Brocade because this agreement should significantly increase its market share of in enterprise data centers. The Foundry product line currently rates fourth in Ethernet switching revenue behind Cisco, 3Com and HP ProCurve. With IBM selling rebranded Foundry products, Brocade stands to rise quickly in the rankings. This will also provide a major marketing boost for sales through Brocade’s existing channels as having IBM endorse the product line will provide major bragging rights.

• Market Impact: High on the Enterprise Networking Systems market because this move by Brocade and IBM may provide a viable challenger to Cisco in the enterprise infrastructure sales. Brocade has a strong product set with the Foundry brand and, with the backing of IBM, can potentially move above 3Com and ProCurve in sales. This agreement will also raise concerns within Cisco about its ongoing relationship with IBM for VoIP, video and blade I/O modules. If IBM and Brocade execute well on this agreement IBM could, once again, become a major infrastructure player and force all infrastructure competitors to deal with another very large economic entity, IBM, in this market.

Recommended Competitor Actions

• Cisco must position this agreement as an attempt by IBM (and hence Brocade) to offer the full range of server and infrastructure products that it provides. Cisco can also point to the fact that its products are all internally owned and developed whereas IBM is simply OEMing another vendor’s products. The focus should be on full integration between all components that Cisco can provide while IBM and Brocade cannot.

• Cisco should also focus on the “fact” that Foundry couldn’t make it on its own and had to be bought by Brocade to remain competitive.

• HP, and its HP ProCurve unit, can respond by pointing out that it has a full line of products for the data center from its own internal business units. Again, like Cisco, the focus should be on the integration of the various products developed under a single vendor.

• 3Com is not competing in the server market and will need to continue to focus on its price and performance when compared to the IBM/Brocade offerings. With a major focus on the small- to mid-sized enterprise 3Com is less likely to run into IBM offering a complete solution (at least initially) and can continue its current direction. However, it must look at the possibility of OEM agreements with someone like Dell or Acer as a future option.

Recommended End User / Customer Actions

• Enterprises that have IBM equipment will be well advised to work with IBM to include the IBM branded Ethernet equipment in any future expansion. At the very least, have IBM and Brocade bid on any RFP as a leverage to gain price concessions from Cisco or other competitors.

• Brocade and its Foundry business division should definitely be on the short list for any enterprise that is searching for new infrastructure components. The IBM agreement provides a solid long-term future for Brocade and ensures new product development should be strong and ongoing.

• Small- to medium-sized businesses should consider asking IBM for a full data center bid including servers, storage and networking infrastructure. With IBM now able to provide its own Brocade branded products the price point may be competitive with HP and Dell, in particular.

CLIENTS ONLY

Current Perspective

Competitive Positives and Concerns

Recommended Vendor Actions

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