FTC Approved Broadcom’s $5.9 Billion Acquisition of Brocade Communications
4 July, 2017
To gain the approval, Broadcom agreed to restrictions on Brocade's access to sensitive information of its main competitor, Cisco Systems
Semiconductor manufacturer Broadcom Limited has agreed to establish a firewall to remedy the FTC’s concerns that its proposed $5.9 billion acquisition of Brocade Communications Systems is anti-competitive. These concerns arise because of Broadcom’s current access to the confidential business information of Brocade’s major competitor, Cisco Systems, in the worldwide market for fibre channel switches.
Fibre channel switches are part of storage area networks that transfer data between servers and storage arrays in data centers. Because fibre channel switches can quickly and securely transfer large amounts of data, they are often used for mission-critical applications. According to the complaint, San Jose, California-based Broadcom makes the fibre channel application specific integrated circuits, or ASICs, that are custom-tailored to carry out the functions of each switch.
Brocade and Cisco are the only two competitors in the worldwide market for fibre channel switches, and Broadcom supplies both companies with ASICs to make fibre channel switches. The complaint alleges that Broadcom’s acquisition of Brocade could harm worldwide competition in the fibre channel switch market because as Cisco’s supplier, Broadcom has extensive access to Cisco’s competitively sensitive confidential information.
As the new owner of Brocade, Broadcom could use that information to unilaterally exercise market power or to coordinate action among Brocade and Cisco, increasing the likelihood that customers would pay higher prices for fibre channel switches, or that innovation would be lessened, according to the complaint.
The proposed consent order, prevents Broadcom from using Cisco’s competitively sensitive confidential information for any purpose other than the design, manufacturing and sale of fibre channel ASICs for Cisco. It requires Broadcom’s business group responsible for developing, producing, selling and marketing fibre channel ASICs for Cisco to have separate facilities and a separate information technology system with security protocols that allow access only to authorized individuals, and provides for other information firewall protections. To assure compliance, the Commission will appoint a monitor for five years, and the Commission may extend the appointment for up to an additional five years.
For further details about the consent agreement, click analysis to aid public comment.