Brocade: Fiscal 2Q16 Financial Results

SAN product revenue of $282 million down 9% Y/Y, 5% Q/Q
This is a Press Release edited by on 2016.08.26

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(in $ million) 2Q15 2Q16 6 mo. 15 6 mo. 16
Revenue 551.8 590.7 1,674 1,688
Growth   7 %   1%
Net income (loss) 91.7 10.5 256.0 147.2

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

These results include approximately two months of financial results from Ruckus Wireless, which was acquired on May 27, 2016.

Brocade reported third quarter revenue of $591 million, up 7% year-over-year and up 13% quarter-over-quarter.

The company reported GAAP diluted earnings per share (EPS) of $0.02, down from $0.21 in Q3 2015 and from $0.11 in Q2 2016. The year-over-year and sequential declines in GAAP EPS were primarily the result of acquisition-related items, including the lower gross margin associated with acquired inventory and deferred revenue, acquisition and integration costs, and increases in the amortization of intangible assets and stock-based compensation. These items were partially offset by the favorable resolution of a tax audit. Non-GAAP diluted EPS was $0.21 for Q3 2016, down 21% year-over-year and down 2% quarter-over-quarter. The year-over-year decline in non-GAAP EPS was primarily due to the acquisition-related purchase accounting adjustments, unfavorable revenue mix, and higher operating expenses.

"Against the backdrop of a mixed macro environment, we posted solid results, with total revenue at the high end of our outlook range," said Lloyd Carney, CEO. "During Q3, we also continued the momentum of new product innovations across our portfolio, building a solid foundation for business growth and expansion of our addressable markets. Furthermore, with the successful completion of our acquisition of Ruckus Wireless in the quarter, we are pleased to welcome this talented and committed team to the Brocade family. Our combined strengths open up new opportunities and distinguish Brocade as a pure-play networking company for the digital transformation era."


  • On May 27, 2016, completed the acquisition of Ruckus Wireless, Inc., enhancing Brocade's position as a pure-play networking company with solutions spanning from the heart of the data center to the wireless network edge.
  • SAN product revenue of $282 million was down 9% year-over-year. The year-over-year decline was primarily the result of lower FC director sales, which decreased 23%, partially offset by fixed-configuration switch sales which increased 3%. Sequentially, SAN product revenue decreased 5%, with directors declining 20%, partially offset by fixed-configuration and embedded switch sales growing 7% and 8%, respectively. The year-over-year and sequential declines in our SAN director revenue were primarily the result of a longer time to closure for many large deals, while the improvement in our switch revenue was primarily due to pull-through demand from all-flash array deployments. Overall, the decline in our SAN product revenue is consistent with commentary from many of our OEM partners regarding the weaker storage demand environment.
  • During the quarter, launched the X6 Director, a Gen 6 FC director for mission-critical storage connectivity. This reliable, high-performance, low-latency solution is designed for all-flash data centers. It extends the company's leadership in offering an innovative and widely deployed FC storage networking solutions.
  • IP networking product revenue of $209 million, including $73 million of product revenue from Ruckus Wireless, was up 36% year-over-year. The increase was due to the acquisition of Ruckus Wireless, partially offset by lower U.S. federal revenue, which was down 26% year-over-year, primarily due to the timing of large orders. Sequentially, IP networking product revenue increased 59% due primarily to the inclusion of Ruckus revenue.

The board of directors has declared a regular third fiscal quarter cash dividend of $0.055 per share of the company's common stock. The dividend payment will be made on October 3, 2016, to stockholders of record at the close of market on September 9, 2016.

Our Comments

Total SAN Business Revenue
Click to enlargebrocadeFixed switch revenue was up by 3% Y/Y driven by pull-through demand from all-flash array deployments.

Three OEMs are shipping Gen 6 directors, with others expected to launch within the next several months. By early 2017, several of company's largest OEMs will have 32Gb storage arrays in the market, which will be switch connect with Gen 6 directors and switches.

Cash and cash equivalents totaled $1.15 billion at the end of the quarter, versus $1.44 billion at the end of the previous fiscal year.

For next quarter Brocade expects global revenue between $630 and $650 million or up between 7% and 10%, and SAN product sales to be up 1% to 4% slightly below normal seasonal patterns.

CFO Daniel Fairfax, CFO, commented on the Dell/EMC merger: "(It) is expected to close within our fiscal Q4. And although we believe this merger will be positive for Brocade over the long term, both EMC and Dell are important customers from Brocade, and we're cautious about the potential for continued near-term disruption as they close their merger and begin to integrate the two businesses."

To read the earnings call transcript