Brocade Busts Into HBAs

Earnings report is glommed with announcement of HBA market entry

June 1, 2007

4 Min Read
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Brocade's had a big week. After unveiling an extensive series of products and enhancements Tuesday, the company today posted earnings, news of a settlement with the SEC, and word of its intent to enter the HBA market, competing against Emulex and Qlogic.

Taking it from the top:

Tuesday, May 29: Brocade revealed the addition of the FC10-6, a 10-Gbit/s director blade for the Brocade 48000 Director; enhancements for remote management and monitoring of the Brocade Fabric Manager and Brocade Enterprise Fabric Connectivity Manager; performance enhancements for remote DR applications using the 48000 or the Brocade 7600 Application Platform (a pizza-box device that runs intelligent applications like EMC's Invista); and a gateway between "classic" Brocade switches and "legacy" McData switches.

The vendor also unveiled file area network (FAN) products, including a new release of Brocade StorageX that boosts control over migration of CIFS and NFS files; a new release of the Brocade File Lifecycle Manager; and Brocade Branch File Manager 2.0, which the vendor claims speeds up centralized control of WAFS.

Thursday, May 31: Brocade made three statements. First, it says the investigation by the SEC of its handling of stock-option grants has concluded. Without admitting or denying any culpability, Brocade will pay $7 million in a civil penalty. This concludes the SEC investigation that jettisoned former CEO Greg Reyes in 2005. (See Top 10 Best-Read Stories of 2006 and 2006 Storage Winners & Losers .)Brocade's latest quarterly report combines the financials of its McData acquisition, and it's the last time Brocade will break out McData info separately. "I am very pleased with our second-quarter performance," said CEO Michael Klayko. "We have successfully integrated two large organizations and rationalized product and service offerings. We've met with thousands of customers... We have far exceeded the commitment we made when we bought McData."

He says the fundamental drivers of Brocade's business remain, and that softening spending on storage, due in part to seasonal slow-downs, are offset by opportunities in server virtualization, consolidation, and IT products with reduced power consumption.

Still, guidance for next quarter will be around $330 million to $340 million, officials said, owing to the seasonal factor and reduced IT spending.

Second quarter revenues were $345.3 million, up 54 percent sequentially and 89 percent year-over-year. Non-GAAP net income was $46.6 million, or $0.11 per share diluted, down 6 percent sequentially, but up 77 percent year-over-year. GAAP net income was flat, or break-even, representing a decrease of 98 percent sequentially and 94 percent year-on-year. (See Brocade Unveils Earnings.)

The big news today came when Brocade explained its "diversification" strategy, involving building out data center fabric products. The first of these include an iSCSI initiator and a 4-Gbit/s FC HBA, both due in July. Plans are underway to supply a further series of "intelligent" HBAs over the next two years.Initial HBAs coming out in July incorporate the technology Brocade acquired with its Silverback acquisition. (See Brocade Grabs Silverback.) The products also will be based on Brocade's development as well as software and foundry services from LSI. Going forward, Brocade will release a 10-Gbit/s Ethernet product, as well as an 8-Gbit/s FC product in the first half of 2008. (See Brocade Busts Out 10-Gbit/s Plans.)

At least one industry analyst, who asked not to be named, is puzzled by the HBA strategy, which will put Brocade into direct competition with partners Emulex and Qlogic. "It's not only weird, it makes no sense economically," the analyst says. "No vendor wants to go through the expense of qualifying another HBA. Each microcode release requires another qualification. There's a reason why LSI has gotten no traction with the major storage OEMs."

Still, the advantages to customers could include lower pricing, as Brocade's HBA presence confronts offerings by Emulex, Qlogic, and Cisco.

Emulex, for one, isn't concerned about the potential complications. Mike Smith, EVP of worldwide marketing at Emulex, issued the following statement late in the day: "We can understand that Brocade may feel pressure to make some move to compete against other switch players, but we do not expect this to have an impact on our business. We expect to continue to partner with Brocade on bringing best-of-breed solutions to market."

Despite any naysaying, Brocade's got its eye on the HBA ball. "Only about 15 to 20 percent of servers are attached to SANs today," Klayko said. "Think enterprise, data center, greater connectivity, and greater management capabilities for customers."Mary Jander, Site Editor, Byte and Switch

  • Brocade Communications Systems Inc. (Nasdaq: BRCD)

  • Cisco Systems Inc. (Nasdaq: CSCO)

  • Emulex Corp. (NYSE: ELX)

  • QLogic Corp. (Nasdaq: QLGC)

  • Securities and Exchange Commission (SEC)

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