Brocade Hits Numbers

That giant exhaling sound you just heard? That was the entire storage networking market, breathing a sigh of relief over Brocade Communications Systems Inc.'s (Nasdaq: BRCD) in-line third-quarter results.

The storage bellwether, which holds a commanding market-share lead in the Fibre Channel switch segment, didn't disappoint Wall Street Wednesday, when it reported third-quarter 2001 earnings of 5 cents per share, directly on mark with analyst expectations.

Brocade, which reported results after the close of markets, said it had $116.3 million in revenues for its just-completed third fiscal quarter of 2001, up from $92.1 million for the same period a year ago and $115.2 million in the second quarter of this year.

In a conference call, CEO Greg Reyes said Brocade has been able to aggressively control internal costs, which has allowed the company to keep its margins at 60 percent, even as it adds to its headcount. Unlike other storage networking companies that are scheduling layoffs (see Net App Announces Flat Q1, Layoffs) or experiencing business slowdowns (see EMC Hits New Lows ), Brocade not only hired 100 people during the last quarter but expects to keep hiring and is predicting a small rise in revenue for the upcoming fourth quarter of 2001.

During the conference call, CFO Tony Canova said Brocade expects to generate $120 million in revenue during its Q4 period, with earnings staying at 5 cents per share as the company invests more money in R&D and continues to add employees. Brocade also said that its high-end Silkworm 12000 director product should start shipping "in volume" to OEMs before the end of the calendar year."We've been able to aggressively control our discretionary costs," Canova asserted, predicting that Brocade should also be able to maintain its 60 percent gross margin for the fourth quarter. He said Brocade finished the third quarter with $13.4 million in delayed revenues and $241 million in cash on hand.

Brocade was even confident enough to predict "modest" growth by the end of 2002, after seeing some signs of ordering recovery during its last quarter. Before the announcement, Brocade's shares closed at $30.34, down $1.77 on the day.

- Paul Kapustka, Editor at Large, Light Reading
http://www.lightreading.com