Showing posts with label EMC. Show all posts
Showing posts with label EMC. Show all posts

Thursday, September 2, 2010

Update on Brocade

On July 23, 2010, I wrote: "I own Brocade (BRCD) shares. As of July 23, 2010, Brocade is my largest individual stock holding." The original post is HERE

On July 23, 2010, BRCD was trading around 5.03. BRCD declined further over the next few weeks, dropping to around 4.70. I continued to buy on the way down, even as I doubled my workout routine to deal with the stress. 

On September 2, 2010, BRCD went up to 5.64. I sold most of my shares around 5.57. 

Although it seems counter-intuitive, I get very anxious when a stock pops over 20% in less than a month. With my "two in the hand is better than one in the bush" mentality, I sold almost all of my BRCD stock. BRCD is no longer my largest holding, and I no longer have an opinion about the direction of its stock price. However, I continue to think a "horizontal acquisition" (when a competitor buys out its competition or supplier) would be ideal for EMC and BRCD, especially because the risk of a DOJ anti-trust objection appears negligible. (Strangely enough, rumors are floating now about EMC being a takeover target, even though very few companies could afford to buy EMC.) 

It's puzzling to me that almost no one has suggested EMC as a potential acquirer of BRCD. Dell (DELL), Hewlett-Packard (HPQ), IBM, and Oracle (ORCL) are usually mentioned in every story about Brocade--even though Larry Ellison once said he wasn't interested in Brocade, and HPQ might not be too keen on making another acquisition so soon after its 3PAR (PAR) deal. 

Regardless of the potential synergies, a Brocade buy-out isn't a sure thing. For example, a company interested in Brocade may decide to look at QLogic Corp. (QLGC) instead. Also, Brocade's Board of Directors may demand a buyout price beyond what an interested acquirer would consider fair or reasonable. And of course, Brocade may simply decide to move forward on its own. 

I do know one thing, though--with so much cash on their books, tech companies are sick of getting close to 0% for it. Most tech companies--mindful of the boom/bust cycles common in the technology arena--usually hoard cash and pay either no dividend or a paltry one. As long as interest rates remain low, many tech companies will be looking to grow through acquisitions. Good luck to them, and good luck to Brocade and its CEO Michael Klayko. 

Prior to Brocade, Mr. Klayko held positions at EMC and IBM. 

Disclosures: I continue to own some Brocade (BRCD) shares, but my holdings may change in the future.

The information on this site is provided for discussion purposes only. Under no circumstances do any statements here represent a recommendation to buy or sell securities or make any kind of an investment. You are responsible for your own due diligence. To summarize, I do not provide investment advice, nor do I make any claims or promises that any information here will lead to a profit, loss, or any other result. Unless specifically stated otherwise, no portion of this blog is commercial in nature in any fashion, nor operated for profit. All copyrighted material reproduced herein appears under a claim of fair use. Nothing herein constitutes legal advice, in any state; those seeking legal advice should consult with an attorney licensed to practice law in the appropriate jurisdiction. No guarantee made of updates at any rate of frequency or periodicity. All statements of fact in this blog are derived from sources reasonably and in good faith believed to be true and accurate. Author not responsible for any harm arising from following anything construed as advice herein.

Friday, July 23, 2010

EMC and Brocade

Update on 9/2/10: this was posted on July 23, 2010, when BRCD was around 5.03. BRCD declined even further over the next few weeks, dropping to around 4.70. On September 2, 2010, BRCD went as high as 5.64. I get concerned when a stock pops over 20% in less than a month, and with my "two in the hand is better than one in the bush" mentality, I reduced my positions substantially. BRCD is no longer my largest holding, and I no longer have an opinion about the direction of its stock price. However, I continue to think a "horizontal acquisition" (when a competitor buys out its competition) would be ideal for EMC and BRCD. Original post is below.

Update on 9/7/10: today, I sold all but one of my BRCD shares. Will I regret my decision? Perhaps. But as I said earlier, I am risk-averse, especially after seeing a stock move higher so quickly.

More here, in case anyone is interested. Check out the comments section within the link.

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I've got a superstitious side. I sometimes get gut feelings based on no evidence or new information, and yet, my logical side fails to ignore these feelings. I know this: I am no prognosticator. You should not rely on my subjective opinions. For some strange reason, I just got a gut feeling that EMC may be buying out Brocade (BRCD). I used to think IBM would buy out Brocade, but now EMC seems a more viable suitor. No logic is involved, just a sudden gut feeling. As of today, Brocade is trading around 5.03/share.

Mind you, I have no idea if or when Brocade will be bought out, but it seems clear that BRCD is too small to compete against IBM, HP, or Cisco. Yet, despite all odds, Brocade continues to offer excellent technology and human capital. As such, once Brocade's earnings get back on track, it will be an attractive takeover target. It seems to me that a smart suitor will buy a beaten-down company right before it starts doing well, not after. Once Brocade performs well, its stock price will increase significantly, making a buyout more expensive. Right now, though, if EMC were to offer Brocade $7.00/sh, I would be very pleased.

Disclosures: I own Brocade (BRCD) shares. As of July 23, 2010, Brocade is my largest individual stock holding. However, my holdings may change in the future.

Update: conventional wisdom indicates a buy-out won't happen any time soon. Oracle's Ellison has indicated he isn't interested in Brocade, and HPQ/Dell seem to be moving towards more software-based companies. Also, EMC has publicly stated it is looking at sub-billion dollar purchases, so perhaps BRCD is too expensive for EMC. Even so, I continue to believe that Brocade will be bought out at some point.

The information on this site is provided for discussion purposes only. Under no circumstances do any statements here represent a recommendation to buy or sell securities or make any kind of an investment. You are responsible for your own due diligence. To summarize, I do not provide investment advice, nor do I make any claims or promises that any information here will lead to a profit, loss, or any other result. Unless specifically stated otherwise, no portion of this blog is commercial in nature in any fashion, nor operated for profit. All copyrighted material reproduced herein appears under a claim of fair use. Nothing herein constitutes legal advice, in any state; those seeking legal advice should consult with an attorney licensed to practice law in the appropriate jurisdiction. No guarantee made of updates at any rate of frequency or periodicity. All statements of fact in this blog are derived from sources reasonably and in good faith believed to be true and accurate. Author not responsible for any harm arising from following anything construed as advice herein.