Brocade Boasts Big Quarter

Brocade turned in a solid quarter last night, exceeding forecasts and solidifying its position as revenue leader in the Fibre Channel switch space. And even as the SEC investigation into the company remains unresolved, execs anticipate more growth -- and more acquisitions. (See Brocade Posts Q2, Names CFO, and Brocade Eyes SEC Settlement.)

The company substantially exceeded its guidance, announcing net revenue of $182.7 million, up 7 percent sequentially and 26 percent year-on-year. GAAP net income was $13.5 million, or $0.05 per share, up sequentially from $9.7 million, or $.04 per share. However, GAAP net income for last year's second quarter was $21.4 million, or $0.08 per share.

Analysts had estimated revenues of $160.37 million and earnings of $0.05 per share.

Speaking on a conference call last night, Brocade CEO Michael Klayko credited demand for 4-Gbit/s technology with driving growth. "It took us over five years to sell our first million one-gig ports," he explained, adding that the firm recently reached the million mark for 4-Gbit/s ports, just 16 months after it started selling the technology. "We expect the rate of change to new four-gig platforms to accelerate in the second half of the year," he added.

Though Brocade does not break out specific product line performance in its quarterly reports, Richard Deranleau, the vendor's new financial chief, explained that 4-Gbit/s technology accounted for over 90 percent of Brocade's second quarter revenue. "The transition [to 4 Gbit/s] for us has already occurred," he said. (See Brocade Bulks Up 4-Gig Gear, and Brocade Touts Switch, Blade.)But execs admitted the market is set to change, with rivals Cisco and McData soon to start shipping 4-Gbit/s directors of their own. "It will get a little more competitive, I think," Tom Buiocchi, Brocade's vice president of marketing, told Byte and Switch. "But we feel pretty strong about our product position."

Brocade's results certainly compare favorably with the competition, including Cisco's latest quarterly storage revenues, which at least one analyst estimates to be about $86 million, up 13 percent sequentially. (See Cisco Reports Q3 and Cisco Storage Rebounds.) McData has forecast falling into the low end of its guidance: When it announces earnings later this month, that switchmaker estimates revenues will be $167 million, down 8 percent sequentially. (See McData Gives Preliminaries.)

Meanwhile, Brocade still has the matter of an SEC investigation into its finances hanging over its head. (See Brocade Being Investigated.) Execs on last night's call studiously avoided the topic, confirming only that $3.2 million had been allocated towards the investigation during the firm's second quarter.

Klayko was more forthcoming on the topic of M&A, admitting that he is still on the prowl for new blood after recently snapping up file virtualization specialist NuView. (See Brocade Bags NuView and Brocade Acquires NuView.) "We're always looking at acquiring technologies, products, and services that will help solve customers' problems," he said. "We're constantly surveying the market."

Brocade is also looking to gain from the WAN optimization technologies offered by its new buddy Packeteer. "We have an opportunity to work with them to blend their technology in," said Buiocchi.Brocade joined forces with Packeteer when the latter stumped up $78 million for Brocade's WAFS partner Tacit Networks. (See Packeteer Picks Tacit and Packeteer Buys Tacit.) The ink was barely dry on the deal when Brocade announced that its OEM agreement with Tacit was being extended to Packeteer, something that now looks like it could form the basis of a wider partnersip. (See Brocade, Packeteer Team Up.)

The market responded positively to the results. In late trading last night, shares of Brocade rose 30 cents (5.20%) to $6.07.

James Rogers, Senior Editor, Byte and Switch

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