Brocade: Fiscal 1Q17 Financial Results

Brocade Communications Systems, Inc. reported financial results for its first fiscal quarter ended January 28, 2017.

The company reported first quarter revenue of $581 million, up 1% year-over-year and down 12% quarter-over-quarter.

The firm reported a GAAP loss per share of $0.01, down from diluted earnings per share (EPS) of $0.23 and $0.16 in Q1 2016 and Q4 2016, respectively. Non-GAAP diluted EPS was $0.16 for Q1 2017, down from non-GAAP diluted EPS of $0.29 and $0.33 in Q1 2016 and Q4 2016, respectively. The year-over-year decline in both GAAP and non-GAAP diluted EPS primarily reflects lower SAN revenue and lower IP Networking wired switch and router revenue, offset by the added revenue from the Ruckus Wireless acquisition.

The sequential decline in both GAAP and non-GAAP diluted EPS is primarily due to lower IP networking revenue, attributed in part to customer uncertainty surrounding the pending acquisition of Brocade by Broadcom Limited and Broadcom’s publicly announced post-closing plan to divest Brocade’s IP networking business.

In addition, both the year-over-year and sequential quarterly declines in GAAP diluted EPS reflect the inclusion of certain acquisition-related expenses that negatively impacted Q1 2017 results.

In light of the pending Broadcom acquisition, Brocade will not provide fiscal Q2 2017 guidance and will not hold a conference call to discuss these financial results.

In addition, on February 22, 2017, Broadcom and ARRIS International plc announced that they have reached an agreement for ARRIS to acquire Brocade’s Ruckus Wireless and ICX campus switch businesses. This transaction is expected to be completed after the close of Broadcom’s acquisition of Brocade.

Highlights:
    •    SAN product revenue of $307 million was down 12% year-over-year. The decline was primarily the result of lower FC director and embedded switch sales, which both declined 20% year-over-year. Sequentially, SAN product revenue increased 1%, with fixed-configuration switch revenue up 6%, partially offset by lower director and embedded switch revenues, which were down 2% and 8%, respectively. The year-over-year and sequential revenue performance was impacted by competition from alternative storage networking technologies and architectures, and customer uncertainty surrounding the pending acquisition of Brocade by Broadcom.
    •    IP networking product revenue of $174 million, including $72 million of product revenue from Ruckus Wireless, was up 30% year-over-year. The increase was primarily due to added wireless revenue following the acquisition of Ruckus Wireless in the third quarter of fiscal year 2016, partially offset by lower wired switch and router revenue. Sequentially, IP networking product revenue decreased 32%, primarily due to Broadcom’s planned divestiture of Brocade’s IP networking business.

The Brocade board of directors has declared a regular second fiscal quarter cash dividend of $0.055 per share of the company’s common stock. The dividend payment will be made on April 4, 2017, to stockholders of record at the close of market on March 10, 2017.

(1)    Revenues are attributed to geographic areas based on known product delivery location. Since some OEM partners take delivery of Brocade products domestically and then ship internationally to their end users, the percentage of international revenues based on end-user location would likely be higher.
(2)    SAN and IP networking business revenues include hardware and software product, support, and services revenues.