IBM Allies with Brocade, Challenging Cisco

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NEW YORK (Reuters) – Network equipment maker Brocade Communications Systems Inc is bolstering its partnership with IBM, in a sign it may be gaining market share from industry leader Cisco Systems Inc.

International Business Machines Corp will rebrand ethernet switching and routing products made by Brocade as IBM products and sell them to mutual corporate customers, the companies said on Tuesday.

“I think what you’re going to see is an expansion of revenue because of the sheer reach that IBM has and their ability to include it in their own branded products and solutions that they develop,” said Brocade Chief Executive Michael Klayko. “This is some interesting upside opportunity for us.”

Brocade shares have risen around 27 percent since Reuters first reported the plan earlier this month, citing sources with knowledge of the matter.

The move to bolster this partnership comes amid increasing rivalry between IBM and Cisco, which recently announced that it will start selling computer servers. Cisco’s move was widely seen as a direct challenge to IBM and Hewlett-Packard Co, which help sell Cisco’s routers and other network equipment through partnerships.

IBM already sells some Brocade equipment, such as storage-related devices, and accounts for at least 10 percent of Brocade’s sales.

But the latest move expands on that relationship by including switches and routers made by Foundry Networks, which Brocade acquired late last year.

An IBM spokesman said the company’s relationship with Cisco is unchanged and that it aims to provide a wider range of options for customers. But analysts said Brocade may be beginning to benefit from the increased rivalry between Cisco and IBM.

Yankee Group analyst Zeus Kerravala said the announcement showed Brocade’s acquisition of Foundry was yielding the intended benefits.

“This is one of the most tangible proof points of the growth strategies for the data networking business that Brocade identified when it acquired Foundry Networks,” he said.

In February, Brocade forecast 2010 revenue of $2.1 billion to $2.2 billion, but said a successful integration of Foundry could take it higher, to around $2.2 billion to $2.6 billion.

Brocade has been identified by analysts as a potential takeover target by IBM or other large technology companies. Klayko declined to comment on that possibility, but said he was satisfied with the current relationship with IBM.

“Essentially I’ve been married to them for over a dozen years, and we have a very, very good marriage,” he said.