Street-beating Brocade bounces back
Third quarter revenue rise and profits add shine to its switches
Storage networking biz Brocade has bounced back from its disappointing and loss-making second quarter results with third quarter profits and a revenue rise.
The quarter finished on 2 August and revenues of $545m were 2 per cent up on the previous quarter and the year-ago one – not dramatic but nice and steady. Net income (profit) was $87m, 16 per cent of revenues; much better than the $14m loss in the previous quarter but 27 per cent less than a year ago when revenues were $537m.
CEO Lloyd Carney called it a solid quarter. SAN business revenue, including switch and director products and services, was $380m, up 3 per cent year-over-year and flat sequentially. The switch to 16Gbit/s Fibre Channel helped here.
IP Networking product revenue was $133m, down 1 per cent year-over-year and up 9 per cent sequentially. Ethernet switch revenue increased 17 per cent year-over-year and 27 per cent sequentially. Routing product revenue decreased 19 per cent year-over-year and 20 per cent sequentially, primarily due to a pause in some customer orders in anticipation of new products scheduled for release in the next quarter.
Stifel Nicolaus MD Aaron Rakers anticipates new 10/100GbE MLX blades coming then together with new routers.
William Blair analyst Jason Ader noted: "IP came in at the low end of guidance and registered a year-over-year decline for the fifth consecutive quarter."
He summed the quarter up like this: "Strong quarter but cost-cutting thesis looks played out with little growth in sight." He said he expects "Fibre Channel to be a shrinking market over the next several years. In addition, we believe Brocade continues to benefit from QLogic's exit from the Fibre Channel switching business, though this represents a temporary share-gain tailwind."
Brocade expects next quarter's revenues to be between $550m and $570m, a slight year-on-year rise at the mid-point. This expectation is lower than it would otherwise have been on two counts; uncertainty due to the IBM-Lenovo X86 server transition and the geo-political situation concerning Russia and Ukraine.
Adair is quite blunt about Brocade: "Ultimately, the company remains a cost-cutting cash cow story — until proven otherwise." ®
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