February 24, 2010 – At first glance, Brocade’s Q1 financial report looked pretty good this week. The company reported revenue of $539.5 million. That compares to $431.6 million in the same period a year ago (although below the $548.4 million average predicted by analysts), for a 25% year-over-year increase.
And the company turned a tidy profit. Net income for Brocade’s first quarter (which ended January 30) was $51.1 million. That compares to a net loss of $23.9 million in the same period last year.
Not as good as NetApp’s recent financial report (see “NetApp hit$ a home run” ), but not bad.
However, Brocade’s stock price got hammered (plummeting more than 20%) and a number of financial analysts downgraded the company’s stock. Why?
It seems to be a combination of factors. For one, not living up to (internal and external) expectations. Two, a lackluster outlook for the remainder of its fiscal 2010. The company predicted sales growth of 8% to 12% for fiscal 2010, or up to $2.18 billion, but the company had previously forecast revenues of $2.25 billion to $2.45 billion. (Brocade’s fiscal year ends in October.)
Third, and this is the real culprit: The company had nothing but bad news on the Ethernet front, where it competes primarily with Cisco, Juniper Networks, and HP (see Kevin Komiega’s blog, “Ciscso-HP partnership implodes” ). Acknowledging the weakness in its Ethernet switching performance, and vowing to “re-energize” the company in that market, Brocade CEO Mike Klayko pinned some of the blame on weak sales in the government sector.
Actually, I’m not surprised by Brocade’s lackluster performance in the Ethernet switch market, but what do I know? If there’s not an iSCSI or FCoE angle, I don’t know squat about the Ethernet switch market.
Brocade’s storage news was pretty good: Revenues of about $350.7 million, which was essentially flat compared to the previous quarter but up from $310.75 million in its first quarter of last year.
Other than its Ethernet business, and puny compared to it, Brocade is also still weak in the Fibre Channel HBA market and doesn’t seem to be making any headway against the Emulex-QLogic duopoly. And it’s way too early to tell what Brocade’s positioning will be in the FCoE and converged network adapter (CNA) market.
Although I didn’t see any evidence of it, I assume that the plummet in Brocade’s stock price will probably revive rumors of the company being a takeover candidate. But who would the potential suitor(s) be?