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Brocade: Fiscal 2Q16 Financial Results

SAN connectivity products revenue of $297 million down 5% Y/Y and 15% Q/Q

(in $ million) 2Q15 2Q16 6 mo. 15 6 mo. 16
Revenue 546.6 523.3 1,123 1,098
Growth   -4%   -2%
Net income (loss) 77.0 43.1 164.3 136.7

Brocade Communications Systems, Inc. reported financial results for its second fiscal quarter ended April 30, 2016.

The company reported second quarter revenue of $523 million, down 4% year-over-year and down 9% quarter-over-quarter.

The company reported GAAP diluted earnings per share (EPS) of $0.11, down from $0.18 in Q2 2015 and down from $0.23 in Q1 2016. Non-GAAP diluted EPS was $0.22 for Q2 2016, flat year-over-year and down from $0.29 in Q1 2016.

Despite the challenging environment for both SAN and IP networking, Brocade had a productive second fiscal quarter,” said Lloyd Carney, CEO. “We were excited to announce our intent to acquire Ruckus Wireless, a pioneer in wireless infrastructure solutions, in a transaction that we expect to close in our third fiscal quarter. In addition, we began shipping our industry-leading Gen 6 FC switching solution, and garnered our first customer win for the New IP-based mobility platform, Brocade Virtual Core for Mobile, that we launched earlier in the quarter. Through achievements such as these, we continue to drive the strategic evolution of our business as a pure-play networking provider for the digital transformation era. Additionally, we expect our product roadmap to deliver further advancements across our portfolio that set the stage for expanded opportunities in the quarters to come.”

Highlights:

  • SAN product revenue of $297 million was down 5% year-over-year. The year-over-year decline was primarily the result of softer demand across the product portfolio, with FC directors down 6%, fixed-configuration switches down 4%, and embedded server switches down 9%. Sequentially, SAN product revenue decreased 15%, with FC directors declining 12%, fixed-configuration switches down 14%, and embedded server switches down 25%. While the FC SAN business normally experiences seasonal softness in our fiscal Q2, the sequential revenue decline was larger than expected due primarily to unusually weak storage demand as reported by many of our partners and peers.
  • During the quarter, Brocade announced and recorded revenue in connection with the launch of the first phase of the Gen 6 FC switching platform, the G620 Switch. Advancing Brocade’s leadership in FC technology, this next generation of switches delivers superior performance and scalability designed to support continued data growth and the demanding workloads from mission-critical applications that are increasingly deployed on flash-based storage.
  • IP Networking product revenue of $132 million was down 9% year-over-year. The decline was primarily due to lower router sales, down 33%, partially offset by stronger Ethernet switch sales, up 9% from Q2 of 2015. The year-over-year decline was primarily the result of lower service provider and U.S. federal sales. Sequentially, IP Networking product revenue decreased 2% primarily due to lower Ethernet switch sales, which were down 3% from Q1 of 2016. The sequential revenue decline was primarily due to lower sales to enterprise customers as both service provider and U.S. federal revenue grew sequentially.
  • On April 4, 2016, Brocade announced its intention to acquire Ruckus Wireless, Inc., enhancing company’s position as a pure-play networking company with solutions spanning from the heart of the data center to the wireless network edge. The combined company is expected to be #1 in SANing, #1 in service provider Wi-Fi, #2 in data center networking, #3 in enterprise wireless LAN, and #3 in enterprise edge networking (in the U.S. and EMEA). The acquisition is expected to close in Brocade’s fiscal third quarter.

Board Declares Increased Dividend
The Brocade board of directors has declared a regular third fiscal quarter cash dividend of $0.055 per share of the company’s common stock, a 22% increase from the dividend of $0.045 per share declared and paid in each of the previous four fiscal quarters. The dividend payment will be made on July 5, 2016 to stockholders of record at the close of market on June 10, 2016.

Comments

Brocade warned earlier this month it would miss its 2FQ16 revenue outlook the main reason being that "(...) recent market softness impacted our Q2 revenue results, and is expected to provide a headwind in Q3", according to CEO Lloyd Carney.

Revenue from total SAN business, including products and SAN-based support and services, was $351 million in 2Q16, down 4% from 2Q15 as overall product revenue was down 5%. This decline was partially offset by a 4% increase in SAN global services revenue. The company believes the year-over-year decline in SAN revenue reflects an overall slowdown in storage spending and "is consistent with commentary from many of our partners and peers."

SAN-based global services revenue was $55 million, up 4% Y/Y.

For 3Q16, Brocade sees SAN product revenue to be down 3.5% to 7% Q/Q as "the overall storage environment to remain weak at least through our third quarter."

The company expects global revenue next quarter to be in the range of $510-530 million not including Ruckus sales between $50 and $60 million.

SAN products revenue in $ million

2Q15 314
3Q15 309
4Q15 325
1Q16 347
2Q16 297
2Q16 Q/Q growth -15%
2Q16 Y/Y growth -5%
FY16/17 target -0% -2%

SAN split detail
brocade 2Q16

 

 

 

 

 

 

 

 

 

 

 

 

 

To read the earnings call transcript

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