Brocade Shaves Heads

Following in McData's footsteps, Brocade has slashed staff from its hardware division

February 6, 2004

2 Min Read
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Brocade Communications Systems Inc. (Nasdaq: BRCD) has laid off 25 hardware engineers in an effort to "streamline operational efficiencies."

Spokeswoman Leslie Davis confirmed today that Brocade eliminated the positions recently at its headquarters in San Jose, Calif., in an effort to better match up personnel with work at hand. Davis says it's not an expense reduction effort, per se. The reduction affected less than 2 percent of Brocade's total headcount, which stands at about 1,230 post-cuts.

Brocade's action follows a similar move by rival McData Corp. (Nasdaq: MCDTA) last week (see McData McDownsized). That company, however, cut about 9 percent of staff.

Brocade plans to announce its quarterly financials on February 11. While Davis says she can't comment on the possibility of future cuts, there is "nothing anticipated" in terms of further layoffs, she says.

Brocade had a larger layoff last April when it chopped 115 employees, or 9 percent of its workforce. The company took a $10.9 million charge for restructuring and severance for that quarter (see Brocade Chops More Heads and Brocade Hit With Q2 Loss).Both Brocade and McData have faced increasing pressure from the entry of Cisco Systems Inc. (Nasdaq: CSCO) into the Fibre Channel director market. The new market seems to be doing well for Cisco, according to its earnings report this week (see Cisco Storage Growing Up).

Ongoing rumblings have highlighted the struggles both companies have had attempting to battle Cisco and define their particular market niches (see Did Brocade Blow an Opportunity? and McData Maudlin Over Price Pressure). So far, it looks like Brocade has opted to charge hard in the midrange market, where it traditionally has seen stronger sales, compared with McData and Cisco's higher-end gear (see Brocade & McData's Paths Diverge). Industry scuttlebutt has it Brocade is on track to release a new low-end director switch, code-named Dazzler, later this spring.

At least one analyst firm sees that low-end niche as the target for an increasingly intense competitive confrontation. "In our view Brocade, McData, and Cisco have reached a strategic stalemate in the premium segments of the market and face an increasingly intense guerilla war in the entry-level territory," wrote Robert Montague and colleagues from RBC Capital Markets in a note this week.

In RBC's view, it's time for at least one of the three vendors to combine with one of the others, even though all three are in a position to keep going it alone -- which will likely result in further price reductions, OEM conflicts, and other signs of skirmish. The analyst's suggestion: Combine and "Give peace a chance."

Mary Jander, Site Editor, Byte and Switch0

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