Brocade Cautious About Growth

Brocade Communications Systems Inc. (Nasdaq: BRCD) today confirmed it met its revenue forecast and beat income expectation last quarter, but executives are cautious about growth for the current quarter.

The results were in line with Brocades announcement last week (see Brocade Announces Prelims). It reported revenue of $150 million, up three percent from last quarter and 12 percent from last year. Brocade also reported net income of $15.2 million and earnings per share of $0.06 per share, up from $0.03 EPS last quarter and $0.01 last year. Brocade matched the First Call revenue consensus and beat EPS forecast by $0.01.

CEO Greg Reyes's guidance didn't call for much of an increase the current quarter, as he forecast $150 million to $156 million in revenue. That would result in flat or slight growth over last quarter.

Reyes said the caution is due to a delay in the expected growth of technology spending, and because Brocade is in a new product cycle.

"All of our new products are in the market," he said in a call with analysts. "It takes a couple of quarters to hit the sweet spot in any new product cycle."Since March, Brocade has rolled out new high- and low-end SAN switches, a multiprocol router, and a switch module for IBM blade servers. (See Brocade Launches Meteor), Brocade Dazzler Starts Low), Brocade Ships Multiprotocol Router, and IBM, Brocade Tie SAN Knot.)

Reyes said Brocade reported record director sales, but the midrange market was flat with the previous quarter and the anticipated entry level switch market hasn't yet materialized. "We don't see the growth we had hoped for," Reyes said of the low end. "Our new entry-level switch is still ramping."

Brocade executives say directors got a bump last quarter from the company's support of FICON and its new 128-port Silkworm 24000. Brocade previously had no switches with more than 64 ports.

The results were better than last quarter, when Brocade was forced to lay off more than 100 employees after reporting revenue of $145.6 million. This quarter, Brocades’s revenue growth fell between Cisco Systems Inc. (Nasdaq: CSCO) and Computer Network Technology Corp. (CNT) (Nasdaq: CMNT) among its rivals that have reported earnings.

Cisco said its SAN switch revenue increased 41 percent from last quarter and 180 percent from last year, while CNT, a distant fourth in the market, reported a revenue drop of 20 percent from last quarter and laid off 18 percent of its staff (see Cisco Storage Stays Mysterious and CNT Takes a Hit). Brocade’s main rival, McData Corp. (Nasdaq: MCDTA), reports its earnings Thursday (see Switch Vendor Silence Is Golden).Brocade avoided getting dragged down by a poor quarter by Hewlett-Packard Co. (NYSE: HPQ), one of its main OEMs (see HP Storage Slammed). HP's poor results hurt at least two of its partners, HBA vendor Emulex Corp. (NYSE: ELX) and tape library provider Overland Storage Inc. (Nasdaq: OVRL). (See Emulex Cuts Guidance, Jobs and Overland Guides Under.)

"As you heard from a number of technology companies, navigating this quarter was difficult at best," Reyes said.

— Dave Raffo, Senior Editor, Byte and Switch