Brocade Gets Down to "Fighting Weight"

Third quarter fiscal 2013 earnings report exceeds expectations as new CEO continues to rebuild and refocus.

By Sean Michael Kerner | Posted Aug 14, 2013
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Under the guidance of CEO Lloyd Carney, networking vendor Brocade continues down the path to a solid storage and IP networking portfolio.

Brocade reported third quarter fiscal 2013 financial results late Tuesday, with revenue coming in at $536.6 million, a 3 percent year-over-year decline. Earnings Per Share (EPS) came in at $0.26, up from the $0.09 reported for the third quarter of 2012. Part of Brocade's third quarter 2013 earnings came from a $76.8 million gain during the quarter, from a legal settlement with load balancing vendor A10 Networks over IP infringement issues.

Brocade's SAN business reported Q3 revenue of $369.2 million for a two percent year-over-year decline. The IP networking business reported revenue of $167.3 million, down six percent year-over-year. Brocade CEO Lloyd Carney commented during his company's earning call that on the IP networking segment, the decline resulted from a shortfall in U.S. Government federal sales.

Moving forward, Brocade provided Q4 guidance for total revenue between $545 million and $565 million.

"What you're seeing us go through right now is we're rightsizing the organization," Carney said. "We're getting down to our fighting weight, right? We're getting to where we have the right infrastructure, the right spend and the right focus on the data center market."

Carney took over as CEO of Brocade in January and has been steadily refocusing the company. Part of that focus emphasizes the data center and Software Defined Networking (SDN), a core part of the Brocade IP networking portfolio. Brocade refers to its SDN efforts as part of the "On-Demand Data Center" strategy formally unveiled in April of this year.

"We've had more downloads and more deployments in the SDN space than any other vendor in the marketplace," Carney said. "So it's where the puck is going, where the market is going, and with virtualized network appliances, we have the number one share there also."

During the earnings call, Brocade did not fully detail how it has reduced its workforce to rightsize the organization. CFO Daniel Fairfax said that Brocade plans to provide more color on headcount changes during the vendor's September Analyst Day meeting.

Storage and the Cloud

Storage makes up a big part of Brocade's business, and during the earnings call, analysts expressed curiosity about the impact of the cloud. Ken Cheng, Brocade CTO, commented that Brocade is seeing a lot of storage and content being moved to the cloud.

"So what we are seeing is that these large cloud service providers and Infrastructure-as-a-Service providers are increasingly looking at infrastructure, which is scaled out, and also looking for virtual infrastructures, which are elastic," Cheng said. "So in both of those cases, we see our Vyatta virtual router becoming a perfect fit for these customers."

Brocade acquired Vyatta in November of 2012. It is now a foundational element of the on-demand data center strategy.

Sean Michael Kerner is a senior editor at EnterpriseNetworkingPlanet and InternetNews.com. Follow him on Twitter @TechJournalist

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