* Brocade exploring a potential sale -sources
* HP interested, but has not made bid -sources
* Oracle could also be a potential bidder -WSJ
* So far, only “feelers,” deal may not happen -source
* Brocade shares up 18.8 pct (Updates with sources, adds details on HP interest, M&A, partnerships; adds bylines)
By Anupreeta Das and Ritsuko Ando
NEW YORK, Oct 5 (Reuters) - Brocade Communications Systems Inc BRCD.O has put itself on the block and Hewlett-Packard Co HPQ.N is one of the companies that could be interested in buying the network equipment maker, people familiar with the matter said.
Brocade, which sells routers and switches as well as software to help companies manage data networks, has shopped itself around to potential buyers for a few weeks, the sources told Reuters on Monday. They said the process is still in preliminary stages.
One source described it as “feelers” rather than a formal process, and said a deal may not happen.
A deal for Brocade, whose equipment and software make it attractive to companies seeking to boost their presence in corporate data centers, would be the latest in a whirlwind of technology dealmaking in recent weeks.
One possible buyer is Hewlett-Packard, the world’s No. 1 personal computer maker, which also makes server computers used in corporate data centers.
Sources said HP has looked at Brocade’s assets, but has not yet made a formal bid. That could be because HP is potentially interested in acquiring only certain components of Brocade, one source said.
HP wants to fill holes in its portfolio, especially after Cisco Systems Inc CSCO.O moved into its traditional server turf earlier this year, and people familiar with the company's strategy have said it is looking at both software and networking acquisitions. [ID:nN3089979].
Shares of Brocade, which bought Foundry Networks last year and has expanded sales partnerships with large technology vendors such as IBM IBM.N and Dell Inc DELL.O, rose as much as 19.9 percent after The Wall Street Journal reported that it was up for sale.
The Journal also named Oracle Corp ORCL.O as a possible buyer of Brocade, which entered the day with a market capitalization of $3.2 billion.
Oracle executives were not immediately available for comment. Brocade and HP executives declined to comment.
FOR HP, A SENSIBLE BUY
Brocade is a top pick for HP, the sources said. One reason is that HP needs to develop more security and “cloud” technology that enables access to software and services over the Web.
“HP has no security offering, no real cloud-enabled technology except through partnerships and no real presence in systems and network management,” one of the sources said. “It’s a no-brainer that they’re looking at all these.”
A deal for Brocade could satisfy any need for HP to boost its storage and IP (Internet protocol) networking, Brocade’s expertise, UBS analyst Nikos Theodosopoulos said.
He said Juniper Networks Inc JNPR.O, another network equipment maker, could also be a potential buyer.
Some analysts, however, said a deal could disrupt Brocade’s sales partnerships, making it less attractive for a buyer.
Brocade relies on partners like IBM to resell its products, and an acquisition by HP, for example, could mean losing sales through other partners that compete with HP.
“This would be one of the complexities to the deal and HP would need to figure out what kind of synergies it can expect to figure out whether it’s worth it,” said Broadpoint AmTech analyst Brian Marshall.
He estimated that up to 20 percent of Brocade’s revenue comes from its partnership with IBM.
Brocade has often cited its independence and ability to work with a wide range of partners as its strong point, one reason Brocade Chief Executive Michael Klayko told Reuters last month that he did not see a need for the company to merge with or acquire another company.
RBC Capital Markets analyst Mark Sue also noted that the complex relationships with vendor partners could be an issue, but said it was not a big deal in the grander scheme of industry consolidation.
Sue said that in a bullish scenario, Brocade’s shares would be valued at $12 each, representing a 2.5 times estimated 2010 sales -- a modest premium to the 2.3 multiple of its peers.
Brocade shares added $1.44, or 18.8 percent, to close at $9.09 on Nasdaq. They had earlier risen as high as $9.14, a level not reached since 2007.
HP shares gained 79 cents, or 1.7 percent, to close at $46.07 on the New York Stock Exchange. (Reporting by Anupreeta Das and Ritsuko Ando in New York and Ajay Kamalakaran in Bangalore; Editing by Maureen Bavdek, Gary Hill)