Hewlett-Packard Company
(HPQ) may consider buying Brocade Communications Systems Inc. (BRCD), as the latter has put itself up for sale. Brocade, which sells routers, switches and software to help companies manage networks, is scouting for potential buyers. The process is in the nascent stages and HP is a strong contender in buying the company as both companies share a similar line of business.

Hewlett-Packard’s acquisition of Brocade will strengthen its grip on the networking equipment market. The company is one of the leading personal computer (PC) makers in the world. It also manufactures servers, which are used by companies in data center operations across the globe.

We believe that the addition of the networking product line will increase HP’s global market share in this segment and strongly position it versus other leading PC manufacturers that are increasingly moving in the same direction.

Historically, the company has grown through strategic acquisitions. The fiscal 2007 acquisition of HP Mercury Interactive Corporation and Opsware helped HP become the leading IT management software and Services Company and a leader in data center automation. Other acquisitions added transaction monitoring, applications security testing and data center automation capabilities to the company’s Business Technology Optimization (BTO) portfolio, thereby increasing BTO revenues by 24.6% in fiscal 2008.

During fiscal 2008, HP acquired nine companies, the largest of which was Electronic Data Systems (EDS), for approximately $13.9 billion.

Although the company has evaluated Brocade’s assets, it did not make any formal offer for the same. Some believe that HP may be interested in buying only certain segments of Brocade. HP is moving in-line with Cisco Systems Inc. (CSCO), which is also planning to grow through software and networking acquisitions.

Although Brocade looks to be a good deal for HP, we believe that other interested parties will also line up to acquire the company. Ultimately we believe that pricing, or the acquisition cost will be the deciding factor.
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