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Brocade: Fiscal 3Q09 Financial Results

Sales and loss increasing

(in US$ millions) 3Q08  3Q09 9 mo. 08 9 mo. 09
 Revenues 365.7 493.3 1,068  1,432
 Growth   +35%   +34%
 Net income (loss)  20.3 (21.0) 131.5 (110.2)

Brocade Communications Systems, Inc. reported financial results for its third fiscal quarter, which ended August 1, 2009. Brocade reported Q3 revenues of $493.3 million, reflecting 35 percent year-over-year growth.

Commenting on Brocade’s third quarter financial results, Michael Klayko, Brocade CEO, said: “We are very pleased with our financial performance which delivered a 35 percent year-over-year revenue growth and a healthy sequential increase in gross margins during a seasonally and economically challenging quarter. The traction Brocade has made in both new and existing partnerships, the opportunities we see in our core markets, combined with our continued product and technology innovation all demonstrate that we are executing on our well-defined strategy and make us optimistic for both the near- and long-term future.”

Recent Business Highlights

Partnership Announcements

  • Brocade announced that it has expanded its strategic business alliance with Net One Systems, the largest independent network integrator in Japan, to help enable the two companies to better address high-growth, emerging opportunities in the data center and service provider networking segments in Japan, particularly in the areas of virtualization and cloud computing.
  • Brocade announced that the Brocade 4 and 8 Gbps Fibre Channel (FC) host bus adapters (HBAs) have been successfully tested on the HP ProLiant server platform, and the HP StorageWorks Modular Storage Array (MSA) and Enterprise Virtual Array (EVA) disk storage platforms. The new Brocade 8000 Fibre Channel over Ethernet (FCoE) switch, which enables the consolidation of storage and IP networking ports at the server edge, will also be offered by HP to its customers.
  • Brocade announced it had completed testing and interoperability qualification of its server connectivity solutions, or HBAs, by all leading storage manufacturers, including HP, EMC, IBM, Hitachi Data Systems, LSI Corporation and Xiotech.
  • Brocade announced a global Alliance Partner Network channel program designed to attract storage and IP networking channel resellers with a more selective, profitable alternative to existing channel programs.
  • Brocade announced two strategic North American distribution partners, Avnet Technology Solutions and Tech Data Corporation, to help expand its existing data center distribution network to enterprise IP networking products via channel reseller partners.
  • Brocade announced a Server Connectivity Certification Program for Assured Compatibility of Brocade HBAs in Multi-Vendor, Heterogeneous Environments.

Product Introductions
Brocade introduced a number of new products and features at Interop that span all layers of the network, reinforcing Brocade’s commitment to continuous IP networking innovation. Specifically, Brocade announced the:

  • Brocade TurboIron 24X 10 Gigabit Ethernet (GbE) top-of-rack switch
  • Brocade ServerIron ADX Series Application Delivery Controllers (ADCs)
  • Brocade FastIron CX Series of Power over Ethernet Plus (PoE+)-ready switches

Executive Leadership
Brocade appointed Amanda Giddins as its new EMEA Channel Sales Director, further signifying Brocade’s commitment to drive business opportunities across the geography and bolster the channel.

Customer Wins
Brocade showcased several data center and enterprise IP networking customer wins, including the San Diego Super Computer Center (SDSC), Mizuno, a number of Independent Operating Companies (IOCs), Insight Investment, Denit Hosting Solutions and Purewire.

Third Fiscal Quarter 2009 Financial Highlights
and Additional Financial Information

  • Revenue of $493.3 million, reflecting 35% year-over-year growth and a 3% sequential decline.
  • GAAP net loss of $21.0 million or $(0.05) per share diluted, and net income of $55.4 million or $0.12 per share diluted on a non-GAAP basis.
  • Total quarterly SAN ports shipped was approximately 0.9 million.
  • SAN Average Selling Price (ASP) declines were in the mid single digits.
  • Net stock-based compensation expense was $43.3 million.
  • Effective GAAP tax rate was (1,977)%; non-GAAP effective tax-rate was 29.2%.

Comments

brocade_3q09_540
1) Based on Brocade estimates of adjustment for OEMs taking delivery of internationally bound shipments in the United States, end-user demand was 52% domestic and 48% international.
2) On an 'As If' combined Brocade basis with respect to Q3 2008.

Abstracts of the earnings call transcript:

Michael Klayko, CEO:
"Our large OEMs drove 46% of our revenue in the last quarter, other OEMs drove 17%, and direct sales from channels contributed 37%.

"At the product level, we announced that all our major OEMs and tier 1 vendors now sell our HBAs and CNAs. Our FCoE switches are now being sold by HP, IBM, and NetApp. We’re excited about our IBM partnership on both the storage and IP networking sides. Brocade and IBM are both committee to an open approach, and we’ve seen a pickup in our pipeline, which we expect to continue into Q4 and next year."


Richard Deranleau, CFO:
"Consistent with the fiscal 2009 outlook we provided in February, we expect revenues to be in the range from $1.9 to $2.0 billion."

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