Broadcom in talks to buy Brocade

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Broadcom in talks to buy Brocade

Could keep fibre channel and storage but divest networking.

Chipmaker Broadcom is nearing a deal to acquire network gear maker Brocade Communications Systems, people familiar with the matter said.

If the US-and-Singapore-based company succeeds in buying Brocade, it would keep Brocade's fibre channel and storage business, which has roughly US$1.5 billion (A$1.96 billion) in annual revenue, while it would aim to divest its networking business, the sources said, asking not to be named because the matter is private.

Broadcom and Brocade declined to comment.

While the companies are in advanced discussions, no deal is final and talks could still fall apart, the people cautioned.

A big part of Brocade's IP networking business that Broadcom would look to divest was acquired as part of Brocade's US$1.5 billion acquisition of Ruckus Wireless earlier this year. This unit generated US$209 million in product revenue in the third quarter.

Shares of Brocade closed 6 percent higher at US$11.24, while Broadcom shares closed 0.9 percent lower at US$168.80 on Tuesday US time.

Brocade would be the latest addition to the sprawling company known as Broadcom, now the third-largest US semiconductor maker by revenue, behind Intel and Qualcomm, with a market capitalisation of US$66.4 billion.

Last year, when Broadcom was called Avago, it made a push into fibre and adapters with the acquisition of Emulex.

By adding Brocade's high-margin fibre unit, it would further bulk up its capabilities to help customers with the backbones of their data centers.

Morningstar analyst Brian Colello said in a research note on Tuesday his biggest concern about a potential deal would be Broadcom having to compete with some of its key customers such as Cisco Systems.

By disposing of Brocade's networking business, it could help mitigate this issue.

Bloomberg reported on Monday that Brocade was nearing a deal to be sold and that Broadcom was among potential buyers.

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