Brocade Comments on Beating Cisco's 4-Gig Products

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Includes: BRCD, CSCO
by: Miriam Metzinger

On Brocade's (NASDAQ:BRCD) Fiscal 3Q conference call, executives discussed the superiority of its 4 gig Silkworm over Cisco's (NASDAQ:CSCO) product and the 18% sequential growth in demand for the 48K:

Richard Deranleau - VP of Finance and CFO

Our competitive position is strong, and we continue to execute on our strategy and business plan. While the pricing environment has been relatively benign, we continue to expect and to model ASP declines that return to historical levels in the mid single-digits, as competition in the 4-gig market continues to grow and mature.

When we take all of these factors into consideration, our outlook for Q4 is as follows: we expect our reported revenue in Q4 to be in a range of $200 million to $205 million. We expect non-GAAP Q4 gross margin to be in a range of 58% to 59%, which is at the high end or slightly above our long-term model. For Q4 we expect total non-GAAP operating expenses to be in a range of $83 million to $84 million, which is consistent with prior guidance.

Michael Klayko-CEO

On our prior quarterly calls, we commented that we were the only SAN infrastructure provider with an end-to-end 4-gig offering, and the only provider of a common operating system across our entire SAN product portfolio. In Q3, our competitors were finally in the market with their 4-gig product line, and yet we continued to outperform all competitors with our 4-gig SilkWorm family. Overall, 4-gig products represented over 90% of our product revenue...

Mark Moskowitz - JP Morgan

Thank you. Your top three customers improved as a percentage of the total revenue mix. Can you maybe share with us some of the forces behind what seems to be a pretty significant uptake there?

Tom Buiocchi-VP of Worldwide Marketing

We've got some pretty good value propositions; in particular, the 48K continues to drive great presence in the enterprise. Remember we introduced a couple of new products over the last three months, the 4900, and in particular our 7500 4-gig routing products that have had exceptional starts out of the gate. So that I'm sure has contributed quite a bit to that concentration...

Paul Mansky - Citigroup

On the Cisco side, obviously you mentioned that you're seeing them out in the market with their 4-gig offering as well. How would you characterize the degree to which that product has been qualified and is being endorsed by some of your primary OEM partners?

Tom Buiocchi

It's tough to tell how it's being endorsed by them. I can tell you though, 18% sequential growth in demand for the 48K, and we know the performance and environmental advantages we have, and the value advantage we have. So it has seemed not to impact our 48K ramp at all.

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