Brocade: Fiscal 1Q11 Financial Results

This is a Press Release edited by on 2011.02.18

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(in US$ millions) 1Q10  1Q11
 Revenues 539.4  546.0
 Growth   1%
 Net income (loss) 51.1 27.2

Brocade Communications Systems, Inc. reported financial results for its first fiscal quarter ended January 29, 2011. Brocade recorded quarterly revenues of $546 million, representing an increase of 1.2% year-over-year and resulting in diluted earnings per share (EPS) of $0.06 on a GAAP basis and $0.12 on a non-GAAP basis.

In the quarter, Brocade saw product revenue growth of nearly 5% sequentially in its storage networking business driven by strong Director product revenues and record Server product revenues. Brocade also saw its international Ethernet product revenue grow 30% sequentially led by its EMEA and Asia Pacific geographies, which helped offset the expected softness in Federal spending. Brocade exceeded its expectations for EPS and operating margin in the quarter.

"We are pleased with the results of Q1 and our ability to execute to our FY2011 Playbook," said Michael Klayko, CEO of Brocade. "The industry's first Ethernet fabric solutions that we began delivering in Q1 have been very well received by customers and the industry. These solutions will help enable our customers to rapidly migrate to virtualized data centers and serve as the building blocks for their cloud-based foundational architecture."

Our Comments

1Q11 total revenues increased a mere 1% Y/Y and decreased 1% sequentially.

Formerly in storage only, Brocade entered in Ethernet following the acquisition of Foundry Networks for $2.6 billion in 2008. At this time, Foundry had annual with revenues of $607 million or an average of $152 million per quarter. Ethernet product sales are now lower, $126 million for the last three-month period but up 32% Y/Y. They were down 11.5% quarterly from all-time record revenue in the former quarter driven by smaller Federal spending.

Storage connection continues to be the more successful business of the company with 61% of global sales for 1Q11, compared to 65% one year ago and 57% the former quarter. Storage product revenues are up 3.4% sequentially - including support - driven by higher director and server sales which were up 16% and 6%, respectively, compared to the previous period. Increases in revenues across director and server product families drove overall SAN growth. Brocade generated the second highest revenue quarter for directors and a record for its server product group in Q1. This latter, including embedded switches, HBAs and mezzanine cards, posted revenues of $48.7 million up 7.0% Y/Y and up 6.4% quarterly. Embedded switches grew 5.7% sequentially while host products including HBAs and mezzanine cards increased nearly 200% yearly. 1Q11 total SAN port shipments were approximately 1.2 million.

"Q2 SAN demand is historically down 6% to 8% and we expect 2Q11 revenues to be slightly better than historical performance," stated the company. "We continue to expect improvements and growth in our Ethernet business as our new sales headcount becomes more productive. We anticipate that our new VDX and VCS products will continue to ramp but will have minimal impact to revenues/gross margin in 2Q11."

Consequently, overall revenues are expected to be between $545 million to $555 million next quarter, flat to up 2%, and up 9% to 11% Y/Y.

            SAN, Ethernet and Global Services Revenues

Brocade continues to depend largely on its OEMs, representing 66% of its revenues, the remaining 34% corresponding to channel and direct sales. EMC, IBM and HP contributed more than 10% of total revenues individually. These top three OEMs represented 47% of sales in 1Q11, up from 44% in the previous period, and down from 54% a year ago. "We saw very good growth from HDS and Dell in the quarter," said Brocade.

To read the earnings call transcript