A Brocade Buy Sensible for H-P - TheStreet

SAN JOSE, Calif. (

TheStreet

) -- With acquisition talk again

swirling

around

Brocade

(BRCD)

, the storage specialist would be an attractive target for

Hewlett-Packard

(HPQ) - Get Report

.

The Wall Street Journal

reported that, in addition to H-P,

Oracle

(ORCL) - Get Report

is also considering a purchase, but the paper said no deal is imminent. Citing people familiar with the matter, the

Journal

reported that Brocade could eventually decide not to complete a sale.

Brocade is certainly an

appealing

proposition that could spell upside for H-P investors. The storage networking firm struck a bullish tone on its recent

analyst day

, raising its 2010 revenue outlook, and has become something of an

analyst

darling

.

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The storage firm, for example, already

partners

with a slew of big name firms such as

IBM

(IBM) - Get Report

,

Dell

(DELL) - Get Report

and H-P.

Sun Microsystems

(JAVA)

, which is being bought by Oracle, is also a partner, although Brocade has a particularly deep relationship with H-P going back 10 years. The company even describes its Storage Area Network (SAN) products that are resold by H-P as the broadest offering of its technology on the market. Set against this backdrop, Brocade is also rumored to be forging a deal with H-P to resell its Ethernet, or IP, products.

H-P's storage business has suffered during the economic downturn, and a Brocade acquisition could provide a major shot in the arm. Revenue from the tech bellwether's Enterprise Storage and Server (ESS) division was $3.7 billion during its recent third quarter, down 23% compared with the prior year.

With H-P attempting to challenge IBM's Global Services behemoth through its acquisition of EDS, Brocade also could take the computer maker into lucrative new data center accounts. H-P also is

gearing up

for a tech rebound in 2010, and recently predicted that it will outpace the tech market's growth, boosted by storage, services and PC refreshes.

Another factor is the rapidly shifting dynamic of the tech sector, which is turning allies into antagonists. H-P, for example, could increase the pressure on its rival

Cisco

(JAVA)

by acquiring Brocade. The two firms are daggers drawn since Cisco stepped on H-P's toes by

entering

the server market earlier this year.

By grabbing the intellectual property of a successful networking company, H-P could give its own ProCurve networking division a significant leg up in its

battle

with Cisco.

With $13.7 billion in total gross cash exiting the third quarter, H-P can certainly afford Brocade, and also has the benefit of an existing storage business. Oracle, in contrast, has no such existing footprint, which could make it more difficult to swallow Brocade.

If H-P were to purchase Brocade, the deal would continue the recent trend of tech sector

consolidation

. Last month, for example, Dell announced a $3.9 billion

deal

to buy

Perot Systems

(PER) - Get Report

, while

Xerox

(XRX) - Get Report

agreed to

buy

Affiliated Computer Systems

(ACS)

for about $6.4 billion.

Signaling its own desire to open up new revenue streams, Cisco agreed to

acquire

Norwegian videoconferencing specialist

Tandberg

for $3 billion last week.

H-P, which was one of the

TheStreet

's

top tech picks

for 2009, said that it does not comment on rumors or speculation, when contacted for comment on this story. Brocade has not yet responded to a request for comment.

Shares of Brocade surged 91 cents, or 11.9%, to $8.56 in response to the acquisition rumor, far outpacing the broader advance in tech stocks that saw the Nasdaq rise 0.5%. H-P's stock crept up 55 cents, or 1.21%, to $45.83.