#Broadcom 's $5.9 billion deal to buy #Brocade and transactions involving hyper-converged vendors and cloud provider #Rackspace highlight storage mergers and acquisitions in 2016.
All mergers and acquisitions, or M&A, in the #datastorage world may forever pale in comparison to #Dell 's $60 billion-plus deal in 2015 to purchase #EMC. The transaction closed in September 2016 and remained the talk of the industry throughout the year.
But there were other billion-dollar storage acquisitions this year, as well as plenty of smaller deal activity in the hyper-converged market, with 2016 M&A news involving market leader #Nutanix, #Pivot3 and #Gridstore.
In the largest storage deal of 2016, Broadcom Ltd. moved to further consolidate the #FibreChannel (FC) industry with its $5.9 billion agreement in November to purchase Brocade Communications Systems Inc. If the deal passes regulatory muster, it will leave only three major vendors selling FC storage networking products.
#Cisco sells FC switches, like Brocade, but it is noted more for its Ethernet-based networking products.
For years, #Emulex Corp. and #QLogic Corp. dominated the FC host bus adapter market, until semiconductor providers scooped them up in the past two years. Cavium announced plans to buy QLogic in June for about $1 billion, just over a year after #Avago Technologies closed on its deal to purchase Emulex for $609 million, including cash and acquired debt.
Earlier this year, Avago closed on a blockbuster $37 billion deal, announced in May 2015, to acquire another semiconductor specialist, Broadcom Corp. Avago took the Broadcom name when the acquisition closed in February 2016. It is this version of Broadcom that has agreed to the buy Brocade.
The Brocade acquisition would make Broadcom the primary vendor of the two main components of a Fibre Channel infrastructure -- switches and host bus adapters (HBAs). That could open the door to antitrust scrutiny in the U.S. and abroad. Broadcom said it expects the transaction to close in mid-2017.
Broadcom plans to divest Brocade's IP business, which includes wireless and campus networking, data center switching and routing, and software. Broadcom CEO Hock Tan explained during a conference call that Brocade's IP networking technology would pose a competitive threat to his company's semiconductor customers. Those customers include OEM system vendors Dell Technologies, Hewlett Packard Enterprise and IBM. Many Broadcom OEMs also sell IP switches.
Tan called Brocade's FC SAN switch business "a very sustainable franchise, with phenomenal profitability." Brocade's FC revenue exceeded $1 billion in 2015, according to Dell'Oro Group. But Dell'Oro's market projections show FC product shipments in gradual decline and FC revenue to be roughly flat, at $2.2 billion, in 2016.
Industry analysts said they don't expect the Brocade-Broadcom merger to have a significant effect on the FC SAN market's trajectory. Enterprises with investments in FC are likely to continue to use the time-tested storage networking technology for mission-critical workloads, despite the growing popularity of IP-based networking for storage.
Although FC's growth potential is low, Cavium envisioned enough of an upside with HBAs to attempt its first foray into mainstream storage. Cavium CEO Syed Ali cited the ongoing transition from 8 Gbps to 16 Gbps FC and the expected shift to 32 Gbps in 2017 and 2018 as all-flash arrays grow in popularity as drivers of FC sales. Ali claimed all-flash arrays have an FC attach rate of 70% to 80%.
