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Brocade: Fiscal 3Q14 Financial Results

SAN business revenue flat sequentially

(in US$ million) 3Q13 3Q14 9 mo. 13 9 mo. 14
Revenues 536.6 545.5 1,664 1,647
Growth   2%   -1%
Net income (loss) 118.7 87.4 144.4 154.6

Brocade Communication Systems, Inc. reported financial results for its third fiscal quarter ended August 2, 2014.

It reported third quarter revenue of $545 million, up 2% year-over-year and up 2% quarter-over-quarter.

The company reported GAAP diluted earnings per share (EPS) of $0.20, down from $0.26 in Q3 2013, and up from a loss per share of $(0.03) in Q2 2014. During Q3 2013, the company recognized a gain of $77 million related to the litigation settlement with A10 Networks, which increased GAAP EPS by $0.13 in that quarter. During Q2 2014, the company incurred a $83 million non-cash goodwill impairment charge associated with the strategic repositioning of the Brocade ADX product family, which decreased GAAP EPS by $0.19 in that quarter. Non-GAAP diluted EPS was $0.23 for Q3 2014, up from $0.19 in both Q3 2013 and Q2 2014, primarily due to higher revenue, improved gross margin, and lower operating expenses.

With another solid quarter behind us, we are seeing the tangible benefits of our data center focused strategy,” said Lloyd Carney, CEO, Brocade. “The resilience and durability of our SAN business, along with strong Brocade VDX sales, validate our strategic direction. We continue to leverage our core competencies in hardware and software networking to position the company for growth, and we remain focused on delivering a world-class customer experience, even in the most demanding environments.

Highlights:

  • SAN business revenue, including products and services, was $380 million, up 3% year-over-year and flat sequentially. The year-over-year improvement was the result of 4% growth in SAN product revenue due to higher switch and director sales, partially offset by lower embedded product sales and the revenue impact from the divestiture of the HBA business during Q1 2014. The revenue performance was better than expected in a typically soft demand quarter.
  • IP Networking business revenue, including products and services, was $166 million, down 1% year-over-year and up 5% sequentially. The sequential increase was primarily due to higher sales of Ethernet switching products to the U.S. Federal government and strong Brocade VDX sales to data center customers, partially offset by lower routing sales to service provider customers and lower support revenue. Q3 2014 IP Networking product revenue was $133 million, down 1% year-over-year and up 9% sequentially. Ethernet switch revenue increased 17% year-over-year and 27% sequentially. Routing product revenue decreased 19% year-over-year and 20% sequentially, primarily due to a pause in some customer orders in anticipation of new products scheduled for release in fiscal Q4 2014.

During the quarter, the company initiated a quarterly cash dividend of $0.035 per share of the company’s common stock and repurchased 12.8 million shares for $112 million. The dividend payment will be made on October 2, 2014 to stockholders of record at the close of market on September 10, 2014.

Comments

Brocade achieves SAN growth of 5% and IP networking 6% Y/Y on an adjusted basis for the quarter.

SAN product revenue, 60% of global sales, was up 5% yearly due to international markets and continued customer migration to Gen 5, representing 79% of director and switch revenue during the quarter.

In 3Q14, the company generated $106 million in operating cash flow.

For 4Q14, Brocade expects SAN revenue to be in a range of down 1% to up 2% from 3Q14, seeing stronger buying patterns from OEM partners.

For the full year 2014, it expects SAN sales up 1% to 2% on an adjusted basis that would be at the low end of the two year target model provided last September.

Total SAN business revenue

1/ Product and global service split
brocade 1
2/ Product split detail
brocade 2

To read the earnings call transcript

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