Brocade Chops More Heads

Brocade Communications Systems Inc. (Nasdaq: BRCD) is undergoing another round of layoffs that will trim its headcount by about 9 percent, the company announced today (see Brocade Cuts 9% of Workforce).

The Fibre Channel switch company said it has laid off 115 employees, or approximately 9 percent of its workforce. After the latest round of cuts, Brocade claims its total worldwide headcount will be around 1,200. The company says it will take a one-time charge associated with the layoffs for its second fiscal quarter of 2003 -- but it won't divulge the amount of that charge until it reports its results on May 14.

Last quarter, the Fibre Channel switch company laid off 12 percent of its employees to reduce operational expenses (see Brocade Cleans House and Brocade Swings Hatchet).

"It's a sign of the times," sighs one Brocade insider about today's cuts.

Before Brocade issued its announcement late today, there was confusion about the severity of the most recent layoffs. "I've heard it's nowhere near 20 percent, but then conversely we're hearing that it's 15 to 20 percent," said a Wall Street source, who requested anonymity. "And this is coming from people inside Brocade."The cuts appear to be heavily concentrated in marketing and sales, the Wall Street analyst added. Meanwhile, a former Brocade employee says some engineering groups were also hit hard. Brocade spokeswoman Fenella Tigner said the layoffs affected all divisions of the company.

Last week at the company's analyst meeting in Las Vegas, Brocade executives said they were "comfortable" with its previous guidance for the April 2003 quarter of between $128 million and $133 million in revenue, which would be up 4 percent to 8 percent sequentially. Analysts expect Brocade to break even for the current quarter, excluding charges related to its acquisition of Rhapsody Networks (see Brocade Puts Up Q1 Loss and Brocade Scoops Up Rhapsody).

Shebly Seyrafi, an analyst with A.G. Edwards, notes that even after last quarter's 12 percent workforce reduction, Brocade's operational expenses are still "bloated."

"They're trying to rationalize the expense structure to reflect the revenue realities," he jargons. [Ed. note: As opposed to the unrealities?]

In "the good old days," Seyrafi says, the company's total operating expenses averaged 48 percent of net revenues; for the most recent quarter, ended Jan. 25, 2003, that figure was 55 percent. A 20 percent layoff, he says, would bring Brocade's expenses down to the mid-40s as a percentage of net revenues.In an interesting coincidence (or is it?), the prominent marketing slogan on Brocade's homepage today says: "Streamline Business Operations." It would appear the company's executives are following their own advice.

Todd Spangler, US Editor, Byte and Switch