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Brocade results are solid as a rock

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Brocade turned in satisfyingly solid results in its final 2008 quarter, beating its own guidance. The Foundry acquisition is on track, Cisco competition contained and it is preparing for a challenging first half in 2009.

Revenues in Q4, ended October 25, 2008, was $398.5m, up 17 per cent from Q4 2007's $340m. GAAP net income was $38m ($0.10/share) vs $32m ($0.08/share) a year ago. Non-GAAP EPS was $0.67 (2007 - $0.56/share).

Full year 2008 revenues were $1.47bn, 19 per cent higher than 2007 ($1.24bn) and net income was $169.5m ($0.45/share) vs FY'07's $76.9m ($0.56/share).

The company ended the year with $650.5m in cash and short term investments.

Services and file-based revenues were flat. The files business, which has been restructured to save costs, will be combined with parts of Foundry when the acquisition, which remains on track, closes. It doesn't look as if file virtualisation is going to be of much concern to customers next year.

Switch revenues rose 10 per cent year-on-year, revenues from embedded switches in servers rose 43 per cent year-on-year, director sales were up 25 per cent year-on-year and DCX revenues were half of director sales in Q4 2008. The HBA (Host Bus Adapter) business recorded no meaningful revenues. And we all wait with bated breath for next quarter's results when they might appear for the first time. The in-house developed HBA products are a big gamble for Brocade. But if it succeeds then both QLogic and Emulex could be adversely affected.

Average selling prices (ASP) declined in the low single digit range and this, combined with Cisco's 4 per cent decline in storage revenues in its last quarterly report, shows that competitive pressure is being contained. Brocade said.

Its outlook is not a doom-mongering one, but neither is it sunny. A challenging first half in 2009 will lead to expected 2009 revenues of $1.44bn-$1.49bn. This is either a small decline or small growth. Non-GAAP earnings per share outlook is $0.57-$0.60, compared to this year's $0.67. Much will depend on the Foundry acquisition proceeding smoothly and the economy not racking into any more ruin. ®

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