Brocade Communications will shed hundreds of employees before its acquisition by Broadcom, and one source with close ties to the company said the feeling of uncertainty in the company is "palpable."
The San Jose, Calif.-based vendor recently implemented a voluntary separation plan for employees in the U.S. and India to reduce Brocade's operating expense structure, according to a Brocade filing this month with the U.S. Securities and Exchange Commission. A total of 230 employees based in the U.S. have accepted the plan and are set to leave the vendor during the company's current fourth fiscal quarter, which ends Oct. 28.
In addition, Brocade is laying off 96 employees based in San Jose effective in October, according to an employment report by the Employment Development Department for the State of California.
Brocade said in the filing it expects to make cash expenditures of $23 million to $26 million in its fourth quarter for severance and other employee termination costs associated with the reduction plan.
In an email to CRN, Brocade said the workforce reduction is in response "to the business conditions created by the previously announced delay in the closing of Broadcom's expected acquisition of Brocade."
"The main goals of the reduction in force were to reduce uncertainty for employees who may have otherwise expected to be terminated at the closing of Broadcom-Brocade transaction and eliminate roles with lessened business criticality or workload given the delayed closing," said Brocade to CRN.
Broadcom's $5.9 billion blockbuster acquisition of Brocade hit a major hurdle in July that has delayed the purchase for months. The acquisition, which was first unveiled in November, was set to be completed by Aug. 1. However, the Committee on Foreign Investment in the United States (CFIUS) halted the process to review the deal further, raising the remote possibility that CFIUS could dissolve the deal altogether.
Top Brocade executives have also been leaving the vendor, including former channel chief Sandra Glaser Cheek, who left last month for a new role at Ciena, as well as Brocade's former EMEA business leader, Marcus Jewell, who recently departed for a similar role at Juniper Networks. Tuesday, Brocade's vice president of corporate marketing, Vasu Jakkal, jumped ship to FireEye to become the security vendor's new chief marketing officer.
As of Aug. 11, Brocade had a headcount of approximately 4,600 employees, down from a total of 5,948 employees it had during its third quarter 2016, according to a Brocade 8-K SEC filing in August.
Brocade said the 230 U.S. employees it was letting go were deemed "not necessary to completing day-to-day operations and who have not received employment letters from a Brocade buyer."
Since the Broadcom acquisition was unveiled last year, Brocade has been selling business assets and shedding employees at a rapid pace.
Brocade is planning to sell its data center networking business to Extreme Networks for $55 million, as well as its network-edge portfolio -- which includes the Ruckus Wireless and ICX Switch product families -- for $800 million to Arris International.
"It's a sinking ship. The people Brocade needs to keep business running have left or are leaving," said the source familiar with the situation, who declined to be identified. "I've been to their headquarters [recently] and the feeling of uncertainty, not knowing job safety, or really what to do is palpable – it really was."
The source said some top executives had planned to stay on until the Broadcom acquisition closed, but due to constant delays, decided to leave before the process completed.
"There was no clear end in sight," he said. "I'm really not sure how it's functioning properly right now. ... There's no more Brocade in my mind. It's going to be separated into five or six different companies."
For Brocade's recent third fiscal quarter, the vendor reported a loss of $19.5 million after reporting net income of $10.5 million in the same quarter one year ago.
"Due primarily to the pendency of the merger and Broadcom's stated intent to divest the Company’s IP Networking business after the closing of the merger, the company has experienced lower than expected revenue, earnings, and cash flows and higher than expected acquisition and integration expenses," said Brocade its SEC filing this month.
Channel partners have also been fleeing Brocade. Multiple vendors including Juniper Networks and Aerohive Networks say they've been winning over Brocade partners who are uncertain about Brocade's future. Some partners have been struggling for the better part of 2017 to close Brocade-Ruckus Wireless sales due to market uncertainty and declining resources.
In the email to CRN, Brocade said, "Until the acquisition closes, our sales and channel organizations are conducting business as usual."
Brocade said it is not planning to conduct a conference call to discuss its current fourth fiscal quarter results due to the pending Broadcom acquisition.
The vendor said it still expects to be sold to Broadcom by the end of its current quarter, which ends Oct. 28.