Will H-P and 3Com Unravel Brocade?

SAN JOSE, Calif. (TheStreet -- Hewlett-Packard(HPQ)'s $2.7 billion acquisition of 3Com(COMS) sent shockwaves through the tech sector this week, placing switch maker Brocade(BRCD) firmly in the spotlight.

Brocade had been touted as a possible H-P acquisition target prior to the 3Com deal. With its longstanding partner H-P netting 3Com, however, Wall Street is now weighing the potential impact on Brocade.

The company's shares fell in the aftermath of the 3Com announcement, and the networking specialist was also downgraded by ThinkEquity and Piper Jaffray. Citing stiffer competition from H-P and 3Com, ThinkEquity downgraded Brocade from buy to hold, whereas Piper Jaffray warned that that the company's Other Equipment Manufacturer (OEM) strategy is not working as planned.

Shares of Brocade closed at $9.25 Wednesday, prior to the 3Com acquisition, and are trading at just above $8 Friday.

"H-P acquiring 3Com [is] a negative for switching and routing competitors long term," wrote Jayson Noland, an analyst at R.W. Baird, in a note released this week. "Implications are most negative for Brocade given speculation H-P would acquire it, plus increased competition for the [company's] Foundry portfolio."

Brocade is a longtime partner of H-P, which rebrands the company's storage switches, although there had been talk that of a similar deal for Brocade's IP networking products.

"H-P buying 3Com takes a Brocade IP OEM deal or acquisition off the table," wrote Noland, but adds that this could also strengthen Brocade's OEM relationship with IBM(IBM).

Another analyst feels that the 3Com deal may have taken the wind out of the sails of both Brocade and Juniper.