McData Corp.’s purchase by rival Brocade Communications Systems marks the loss of another high-tech corporate headquarters in Colorado, direct fallout from a wave of consolidation sweeping through the technology industry.
“It’s true that the technology world is always faced with consolidation for speed and customer reach,” said McData chief executive John Kelley on Wednesday, a day after the buyout was announced. “We recognize it, and Brocade does as well. When they approached us, we owed it to our workers and shareholders to listen.”
San Jose, Calif.-based Brocade will pay $713 million in stock for Broomfield-based McData in a move expected to save the combined companies more than $100 million in expenses annually.
McData makes storage-switching devices that physically sit between a storage system and a network service. The company has 570 employees in the state and 1,482 worldwide. Layoffs are expected locally.
The sale of McData marks the third turnover of a major Colorado technology company in recent years.
In 2004, Redwood Shores, Calif.-based Oracle acquired PeopleSoft, which only a year earlier had bought out local software company J.D. Edwards. In June, Santa Clara, Calif.- based Sun Microsystems acquired Louisville-based Storage Technology Corp.
In addition to big deals, smaller storage provider Creekpath Systems was acquired by Sunnyvale, Calif.-based Opsware Inc. in July. Exabyte Corp., a Boulder-based storage provider, said in June it has retained an investment-banking firm “to assist it in reviewing strategic business alternatives, including the merger or sale of the company.”
“(Consolidation is,) sadly, a reality that we haven’t figured out,” said Brian Vogt, executive director of the Colorado Office of Economic Development and International Trade. “We’re good at creating companies that are strong enough where they’re desired by other companies for mergers and acquisitions.”
Kelley said there’s a greater need to compete globally, with increased demand from Asian countries such as China and Singapore. However, it’s difficult and expensive to maintain a stronghold in various world markets, he said.
“You need money … skilled people and cutting-edge technologies to have the critical mass … worldwide,” he said in explaining the deal with Brocade.
Analysts said big companies are gobbling up other players to hold on to market share. Brocade is a leader in the storage-switching sector with up to 45 percent market share. McData holds less than 25 percent.
“Large technology leaders are maturing, and growth is slowing,” said Brent Bracelin, vice president and senior research analyst for Pacific Crest Securities, a Portland Ore.- based investment firm. “Large companies are trying to expand their profile; (therefore) they have to merge together.”
Consolidation and impending layoffs aren’t a bad thing for Colorado, as the number of big corporate headquarters shrinks, said Rick Strum, chief executive of Enterprise Management Associates, a Boulder consulting firm.
A shake-up can help jump-start entrepreneurship, he said.
“You have many individuals getting the opportunity to exercise their stock option and get wealth – that fuels fodder for new startups,” Strum said. “That makes for an exciting time. Startups are the ones that innovate and create and take the risks that big companies can’t.”
Staff writer Kimberly S. Johnson can be reached at 303-820-1088 or kjohnson@denverpost.com.
