On Monday, the FTC said that it was putting special provisions in place to protect Cisco from potential damage from the acquisition of its competitor, Brocade.
Chipmaker Broadcom got the regulatory nod on Monday to acquire Brocade in a $US5.9 billion deal. (The deal was announced in November.)
Brocade makes equipment to build computer networks and also to build networks specifically designed for computer storage, known as “fibre channel switches.” There’s two big players in this fibre channel market, Brocade and Cisco.
The problem is Broadcom makes a lot of chips for all sorts of networking products, and one of its big customers is Cisco. Right from the start, Broadcom said it would sell off Broadcom’s general networking equipment business. It didn’t want to give the impression that it was competing with its customers. It wanted Brocade for its storage business.
But Cisco wasn’t exactly comfortable with that idea and the FTC agreed. Broadcom proposed one more restriction: it said it would also “firewall off” the chip-making unit working with Cisco products from Brocade. It agreed that any information about the chips it manufacturers for Cisco cannot somehow find their way into the hands of the Brocade unit, to be used to compete against Cisco.
This means the business group that works on Cisco chips must “have separate facilities and a separate information technology system with security protocols that allow access only to authorised individuals” and to institute other protections to ensure none of Cisco’s information winds up in the hands of the Brocade unit.
On top of that, the FTC is going to appoint someone to monitor Broadcom/Brocade for five years to make sure no Cisco leaks occur, and maybe extend that for another five years.
Cisco is between a rock and a hard place with this acquisition. Broadcom is one of the best in the network chip business and it’s not easy to ramp up another supplier of critical chips, though we’ll see if Cisco still opts to do that. It now has a few years of FTC protection to find another manufacturer if it can.
For now, a Cisco spokesperson says the company is satisfied enough with the FTC’s protections, telling Business Insider:
“We appreciate the diligence of the FTC, and, previously, the European Commission, in reviewing this acquisition. Both agencies recognised the harm to competition that might result if Cisco confidential information provided to Broadcom were to be shared with our only fibre channel competitor, and crafted remedies to limit the potential impact on competition.”
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