Dan Fairfax - Chief Financial Officer
Mark Moskowitz - JP Morgan
Brocade Communications Systems, Inc. (BRCD) J.P. Morgan 2013 SMid Cap Conference Call December 11, 2013 11:15 AM ET
Mark Moskowitz - JP Morgan
All right thank you and good morning everyone. My name is Mark Moskowitz, the IT Hardware Analyst here at JP Morgan. And welcome to day two of the JP Morgan’s SMid Cap Conference here in Chicago. Thanks for bringing the elements, definitely it’s cold and wintery out there.
Today we’re quite pleased to have with us the CFO of Brocade, Dan Fairfax. Dan along with the new CEO, Lloyd Carney have really driven a nice refocusing of the company in terms of their strategic direction and cost discipline over the past six to nine months that you have seen that in the nice recovery in the stock price as well as the model. So it’s really a very opportune time to talk to Dan here little more about the company, but Dan is going to be first to talk about 10 minutes and then we will have a fireside chat with me and then we will open it up to the investor audience for questions. Dan, thanks again.
All right, thanks Mark. I recognize many other faces in the room, but for those of you who are new to the Brocade story, I’ll run through just some highlights of the business, and then Mark and I will get into some more specific discussions.
Our disclaimer. So some of my materials do have some forward looking projections and some third party estimates. So please pay attention to the disclaimer we have. Of course, our most recent 10-Q and our 10-K now that we've completed our fiscal year which will fall next week will have more information about the specific risks of investment in the company.
So I think today, when you think about Brocade, really need to think about as a data center, networking expert. It is quite a large market opportunity runs from $8 to $10 billion of annual capital spend in the marketplace. These numbers here are IDC numbers as shown out of the $9 billion spend, we have a clear number two position in this market, very strong credibility with that customer set and really no close competitors in the space. But we think a very nice opportunity to take share from the largest competitor in the marketplace.
Number of interesting attributes about our company. Again from the data center side, we're installed in 90% of the global 1,000 data centers, again very well known company, high reference-ability. Our devices run with a very high degree of reliability, 7, 8, 9s of reliability in the data center. We have switches have been in place for many, many years and a very robust platform there. Particularly as we think about the data center, we think about a clear demarcation line, which is the computer server in the data center. And if we look at the networking between the server and the storage rays, we have a clear number one position in that market. We have over 70% share and have developed that through an innovative strategy over many years now.
And on the data networking side, we have a smaller share, but we see some interest in dynamics in that market. We will have to begin with our view towards innovation. Our company has consistently delivered high performance products. So we can look back to a legacy of having been first to market with the 1 gig, first to market with 10 gig on the Ethernet side. We're first to market with what we see as a brand new architecture which we call an Ethernet fabric, which borrows from our architectural legacy on the storage side and delivers that to the data networking side of the data center.
So a strong position there and great reference-ability as we see architectures change. And I'll walk you some of the dynamics for why that's taking place at our customer set.
Large footprint. We have over 200,000 of our networks installed, more than 30 million ports installed in the marketplace. There is over $10 billion worth of installed product out there. And then we see some very interesting dynamics with the Intel platform as Intel continues to drive the performance of the X86 architecture, soaking up a market opportunity to put networking in software and running on top of an Intel plate. And we’ve got leading position there having made an acquisition a year ago of the audit business. We have over 1 million downloads of virtual router and the largest installed footprint in the marketplace and really what’s going to be a new and disruptive technology.
That’s kind of where we have been. In terms of the strategy, Mark mentioned we did have a CEO change at the beginning of the last calendar year. So Lloyd Carney who has been long time networking professional joined the business, Lloyd has brought a focus to the company. So we can now really say within our business we leverage all of our data networking heritage and assets.
We do have a strong business in the public sector. So as we think about where we can expand our market and our capabilities we know that from a strong position in the U.S. Federal Government we continue to leverage our position and our products and our capabilities there as well as many other public sector accounts who look to the Federal Government as a reference for the kind of certifications that are required, the security features that are needed for those entities who run their network and their businesses.
And I mentioned the new dynamic in our space which is how do we leverage software running on Intel architectures and you continue to see us making significant investments in this marketplace. Revenues won’t be significant through ’14, but you’ll hear us talking a lot about some major proof-of-concept activity and trials going on particularly within the service provider community where they have issues around their cost structures and they prefer to have a lower cost software routing infrastructure for instance rather than having to spend on a specialized equipment.
So that’s really driving the growth rates in the data center and third parties measure this in 12 to 13% growth rate for data networking into data center surpasses part of networking. And it really comes from the history of going back five, six years ago when applications were first moving to the cloud with Salesforce.com we saw our own business facilitate efficient use of storage by the deploying storage networking so we can get compute attached to pool storage in a much more efficient fashion, use storage more effectively. And then more recently with the advent of virtual machines and the virtualization of the server stack within the data center has really changed the needs for networks historically here. And so instead of networks being kind of the passive [particle] design that were originally architected to tremendous traffic from the server up to a routing layer out to the outside world or to a campus environment, we are seeing much more machine-to-machine traffic driven by virtualization. So the virtualization of the data center has created traffic patterns moving across the data center one machine to actually another. And we have provided a lay of products that meet those needs and dynamics.
Interesting for the customer set is as I have seen the increased efficiency and utilization of physical servers. The same kind of promise exists in networking. Networking capital equipment about 40% to 50% of the spend has been to build redundancy and resilience into those networks. Those devices are sitting there largely in a passive role, in case some calamity happens in the network or cables cut or power supply fails a device has an issue. And we now have a clear path for customers to unlock that capital that’s inefficient and put a full active-active network in place. So we are delivering those products today, and we are quite encouraged that as virtualization continues in the data center and customers now change their networking architecture that there is great growth for us for a number of years down the road.
Our design philosophy, different from our major competitor on the market has been one to open us. We want to embrace the virtual role, we have never really felt threaten by innovators dilemma, we have tended to always push all of our products to the edge of innovation, first to market with nearly every advance in the fiber channel protocols for storage and similarly for Ethernet.
As I mentioned we push the speed envelops there and now in terms of efficiency innovation, we continue to push the effectiveness of our software operating systems. And that’s in all sizes of our business and let us to deliver much more efficient infrastructure to our customers and allowed them to reap the rewards of the investments that make in our equipment.
That openness and innovative thinking has driven us to a best-of-breed position. And as a best-of-breed provider we have partner very, very effectively in the ecosystem as we have strong relationships with the major storage OEMs, so the IBMs, the HPs, EMCs, Hitachi, Dell, et cetera, roll our customers and that major partners in the marketplace. We have strong technical alliances in the marketplace where we choose to not make our own investments, we partner effectively. Most recently we announced strong partnership that we formed with Aruba. So after many years, the meeting into the market and working effectively at the customer allocation with Aruba on the wireless side and our wired infrastructure we've formed a tight relationship there and we’ll have significant development that we will be delivering later this year in terms of integration of our two products. We think that will serve both of us quite well in that marketplace.
On the channel side, we spend since mid-2010 developing effective two tier distribution or working with all the classic distributors building us for our community that can deliver our products and our message to the customers who we want to deliver our products to and then building out relationships with the global system integrators.
And then new way of coming to our industry through many new approaches of openness so a cloud stag open flow, open daylight, we participate in all of those consortiums or other entities with technical skill-sets and in many cases we leave the technical steering communities in that case.
We’ve embraced those technologies and we can look at our running infrastructure at every port that we over shipped for routing is now OpenFlow enabled. So we give a huge advantage to our customers set. I continue to keep them on the kind of fresh and the cutting edge of technologies that they want to deploy.
It's been quite a good run for us financially. So we can put up some very interesting numbers there. We've seen our non-GAAP EPS grow 60% from fiscal ‘11 to fiscal ‘13. We've had a steady focus on not only investing in acquisitions. So we're quite pleased with Vyatta acquisition a year ago, where we saw we had excess cash on the balance sheet returning it to shareholders.
So you can see that we've consistently returned capital to our shareholders. We have a commitment in place now to return only 60% of our free cash flow to investors. We continue to be a strong cash generating engine. And we think we have a nice balance of investing in our own innovation, looking for tuck-in acquisitions and then returning the excess cash to our investors. Because we really are not confuse us to lose cash that is. We've been able to expand our gross margins in the business and drive our cash balances. We currently operate on the balance sheet with about $600 million worth of structural debt in the former two bonds. And we're in a solid net cash position. But we think the capital structure as we sit today is fairly well optimized.
And maybe just make some final comments before Mark and I have our conversation. You can think of us as a business where we're really highly focused. We have tried a number of things in the markets. We know where we work the best. We're not confused about more value proposition. And you'll see us really talking consistently about the data center or data center growth and delivering products for that market. The DNA in the business has changed quite dramatically with Lloyd’s joining us last January. He comes from the school of thought that A; if we are doing well this year, we can do better next year. We’ve actually delivered over $100 million worth of cost savings in the business by just looking at where we are focusing, stop doing the things that weren’t returning -- giving some good return on our investment and continuing that process and either dropping that -- those savings to the bottom-line or reinvesting in the business. So this idea as a learning efficient company will continue, do expect this to make strategic investments in the business through acquisitions and through our own development as we see the opportunities develop. And I think you can expect us to continue to return strong amount of our cash flow to investors.
Mark Moskowitz - JP Morgan
Thanks Dan for the overview. Why don’t we continue with those last remarks you made around the $100 million in cost savings. You clearly achieved much faster than a lot of us anticipated. And we’re just kind of curious how much more headroom is there in terms of cost refinement and I guess how is kind of related to the business versus whether it’s mix that could drive better efficiencies or divestitures of certain assets or just better working capital metrics or other.
Yeah. So, the several questions mixed in there. So I think the challenge not only within our business but all businesses is really around the management of our personnel and our people. And I think the real key for us is we set a very focused mission for the business, we’ve communicated to our employees, we run a global workforce, so we have significant engineering resources in many locations, have distributed sales and marketing team as well. But the key in running a global business is not being confused about what we're focused on, what we want to do. So, to your question, how do we achieve significant cost savings over such a short period of time, and it was really getting that clarity of vision in place and then letting our people make the decisions as to where they need to stop doing things and shift their attention and energy. And that will continue as we move forward, and say no where we want to go and what we want to do, they can continue to find more efficient ways to do that business. We’ll facilitate that with investment whether it’s in our own IT infrastructure but we’ll continue to leverage that and we’ll be making the decisions based on alternative investments as to whether we put it back into product, into sales or we return it to the bottom-line.
Within our business itself, there is still more to come in terms of fine tuning deal the top-line. And we held an Analyst Day in September where we talked about which product families we wanted to focus on as we really put our energies in the data center. And there is a few areas of the business we -- probably it’s premature to [unnecessarily] call up because they are currently all revenue generating. But we said there is probably $80 to $100 million worth of the top-line that we saw through fiscal ‘13 that we thought might make sense to find another home for and that if we move the way from those businesses, we could put more of our energy and attention on the places we wanted to focus. We haven’t made these announcements yet but they’re still unchanged in terms of our goal to change the shape of the top-line. And there will be markets where we see lower growth and the cost to serve those customers doesn’t meet our current targets.
Mark Moskowitz - JP Morgan
Okay. Thank you. A couple of follow-ups maybe around that $80 million to $100 million in potential revenue that could be shared; can those assets actually be monetized, do you think there is actually potential buyers out there or is it merely a function of just shutting it down, taking out of the P&L?
So, we haven’t made any specific declarations, but all of the businesses we currently have can be monetize we believe in terms of the things we’re interested and perhaps and stop doing, we think there are homes and a new owner that would value it more highly than we do on behalf of our shareholder.
Mark Moskowitz - JP Morgan
Okay. Then another follow up in terms of the potential for driving incremental cost savings, can you maybe delineate between how much is left in the storage business versus the IP networking business or is it more of a kind of a global corporate back office type of approach?
So our storage business is about two thirds of our revenue, it’s generated from storage networking. The model is highly efficient one that we’ve been working to optimize over many years now. Investment tends to develop as we look at particularly new generation of product. We are in the market with the fifth generation of fiber channel products as we talk today; we have fully rolled out portfolio there. We will finish up as an industry sitting down the standards for the sixth generation that will happen before the end of January, maybe it will get done before the holidays here, but that will be done very quickly. And we will see our investment in R&D platform start to go up a little bit next year, just because of the some of those early investments we make to prepare for the ride of those products; and that will continue.
So there is a little bit of ebb and flow in that business. Sales and marketing side of that is working very efficiently, somewhat and some of the strength of our individual partners, this year was a little bit challenging, particularly for the Hewlett-Packard team, but as I think we also in their fourth quarter they had a very strong sales quarter, they seem to be kind of riding the ship and the strength of the our partners also directly drive strength of our business. But we’re quite pleased with that. That's -- and as I said earlier, Lloyd’s thinking is hey, just because something is working doesn’t mean it can be better and we’ll continue to look at improving that model. Where we see, I think more improvement and where we can really develop the business more aggressively has been in taking our channel organization and shifting its focus to the data center. So a lot of our channel focus now has been on more local area networking and campus accounts, tends to be a harder market for us reach, one we’re brand recognition and the partnering in the field of and certainly pricing may have a bigger impact and the value proposition of the products. We don’t think that exists particularly in public sector and specifically in the data center and so we’re looking at continuing to evolve that distribution network to focus more tightly on the customers that value our products and working with this more highly.
Mark Moskowitz - JP Morgan
Okay. Thank you. How about the dividend, what was kind of your philosophy or attitude towards the dividend right now? Clearly the balance sheet and the cash flow trends have really been on the up and up over the past year and half or so, particularly last of six months; has that changed your view yet, and the Board’s view or just kind of will see if we can continue the goodness that we've created?
So, we’re as a business, I guess we all have our own heritage and history. So, as we looked at choices we could make in terms of returning capital to investors, our initial thought was if we look back through fiscal ‘12, we still had term loans on the balance sheet, we really wanted to retire the term debt, which we did do before the end of fiscal ‘12. At the same time, we want to start using some of the cash to buy back shares. We felt our share price was well undervalued at that time. And so we did significant share repurchase late 2011 and then through fiscal 2012. As we retired the term loans and then through fiscal 13, we've had number of dialogs with our largest shareholders and then many others that we meet at conferences like this and we look at desire of some of investors, it does appear that a dividend would be interesting to a fairly significant portion of our shareholders. And we have an active dialog with the Board as to the right mix of whether we should launch a dividend and at what level and whether it's preferable to stay with the share repurchase. No decisions made at this time, but we have an active dialog along that line.
Mark Moskowitz - JP Morgan
Okay. Good to hear. Why don’t we shift gears more toward the business model? Maybe you could talk a little more about the growth parameters, investors to consider for the two businesses, so SAN and then IP Networking over the next year as well as the next three to four years.
So, on the storage networking side of the business, our products fit in ecosystem at the highest end of the market. So, these are large data center customers that are running very complex networks. So, you can think of networks that have 1,000, 2,000 maybe 15,000 devices are attached to the storage network. So you can imagine that kind of complexity that creates for an IT shop. The pressure within those customers has been such that the amount of data that needs to be stored continues to grow at a more rapid pace. They are allowed to invest in spinning brown disks and now a solid state raise. But they typically aren’t given any more resources to run the operational side of their shop. So, they need to manage all that additional data and complexity with the same number of people.
And so we look at the product set and we’ve delivered quite a bit in terms of diagnostics, resilience, manageability to our customers so they can actually handle this data without adding more cost to their business. That marketplace we believe is growing at about a 2% to 5% rate. The high end of the storage market has nice solid growth; third party analysts confirm those growth rates. So our expectation is this isn’t going to suddenly become a very fast grower but it’s going to be very solid growing marketplace. We also serve the market with a range of devices, so from fixed form factor to modular devices so we can tackle a range of problems. And at the lower end of the storage market, our data networking switches have a lot of work from an engineering standpoint to help optimize them for Ethernet traffic if you want to run a nice (inaudible) or NAS storage network.
So we think quite a lot about storage; and it’s not just fiber channel that’s kind of the main part of our business but think about that business as a 2% to 5% low single digit growing business. And data networking, we see the fastest growing part of the market is the data center, again driven by virtualization of the servers and the change in the traffic patterns. And so, we think that’s growing in a 12% to 13% range. It’s about a $9 billion market, as I mentioned earlier, so quite interesting to us. It’s a place that we have high degree of credibility but a fairly small share right now. And we think there the ability to cross reference our strength from the storage network side over to the data networking teams is going to play quite well for us and we’re seeing some interesting opportunities coming to our funnel of sales opportunities that even as we sit here today.
Other parts of our business that have different growth patterns within the service providers, we deliver high performance routers for transport problems, so this would be principally carrier Ethernet applications moving data from one to another in a service provider network. That marketplace for transport is growing much slower, so about 4% to 5% growth rate and then for campus LA probably growing in a 3% to 4% growth but most of that growth being on the wireless side where we tend not to focus as much, so almost flat growth for wired infrastructure and local area networking.
Mark Moskowitz - JP Morgan
Maybe bringing that altogether, how should investors think about the potential for an inflection point in your consolidated revenue model in terms of cost and back into positive growth territory; is this something that can happen in the next 6 to 12 months or is it still kind of wait and see?
So I think it’s a little bit of both. We believe there is solid growth in our business, ex the products that will ultimately divest or stop focusing on. So, but we haven’t been able to at this point because of the dialogues we're in, disclose that information but we believe we’ll -- once we kind of rightsize the top-line, you’ll see a business that we’ll be able to demonstrate solid year-over-year organic growth within the company. I think key and interesting to us will be really the disruption that comes in the data center for certain applications that will want to run software networking elements on an X86 compute platform. Intel clearly hasn’t been asleep at the switch. They've driven additional performance and they've been thinking about the network in their most recent architectural designs and roll outs. We believe that we're in a great position. We have 1.3 million downloads of our virtual router right now. We have the largest installed base of those products in the marketplace. We think that that will be monetizable as those products start to find their way into true production applications. And that’s probably more of a fiscal ‘15 statement, but again, you will start to hear us talking about some real proof of concepts and applications over the course of fiscal ‘14.
Mark Moskowitz - JP Morgan
Okay. Thanks Dan. A moment ago you talked about seeing better pipeline in some of your data networking products and the last earnings call loaded also -- discussed during the Q&A see more RFP activity or the cluster [Brocade] versus the HPs and Ciscos and Junipers of the world, which is great to see just given particular [wild] agreement on their networks as is to where they can really be primetime particularly if you can see these bigger incumbents. So can you talk more about how this pipeline is shaping up? Is that broad-based or is it just a couple of workloads or used cases or end markets or it’s a broad-based? And when could we see that conversion to revenues. Is that fiscal ‘14 or fiscal ‘15 event where there is increased RFP activity should really help the model?
So the RFP activity correlates within our business in a couple of different ways. When our sales leadership has embraced the movement to the data center, we’ve tended to see the opportunities jump up dramatically in size. It doesn’t necessarily mean there is easier competition; it just means that the selling effort can be significantly more efficient if we are talking about multi-million dollar opportunities versus opportunities that might be in the $100,000, $250,000 range. So we see our selling proposition being much more attractive in that case.
And those teams typically have led the discussions with -- where probably we have something that’s unusual and has a particular value add for the customer, that’s in most cases been our Ethernet fabric line of switches. So this is the product that we call the VDX platform, creates a very attractive fabric of network switches. The value prop would be some place in order of 40% to 50% capital savings and a highly efficient network administration profile for those devices.
So where they’ve led with those solutions, they have tended to see they are getting into the larger opportunities. And we believe we win a higher percentage of those opportunities as well, that's one place. The other has been as we continue to work through our channel organization that we've engaged with the global system integrators, they are quite interested in having an alternative to traditional products and particularly where they are managing data center infrastructure, they want to have a more cost effective footprint as well. And so I think really those two areas have allowed us to see these bigger opportunities develop.
To your question about when we will start to really see some traction on the top-line, as I said, this probably will continue to develop for the first half of this fiscal year and we should start to be able to talk about these larger opportunities as we exit the year.
Mark Moskowitz - JP Morgan
Okay great. I want to ask just two more questions and then turn over to the investor audience. The first one is really around SDN, what's the latest in SDN? And can you just talk about more -- you think you can discuss about the open initiatives, but talk more about maybe the lab work and how many customers are able to come into the labs now they’re starting to get ready for production a year or two from now. Is it really starting to gain some traction there?
Yeah. So SDN, we [joke] inside the company has many different definitions. We really see the most important part of software networking being in the service providers and there they call SDN NFVs, which stands for Network Function Virtualization. That's where most of the interesting activity is taking place and the value proposition for shift to the software networking elements appears to be the most important.
For us what's interesting about that marketplace, if we look back at our own history, we entered the routing space initially in 2005 with our first router. I can recall in 2006, in my quarterly conference call, everyone would be, tell us when you're going to get a Tier 1 service provider, tell us when you're going to get a Tier 2 service provider, give us the names you can talk about? We’ve won business at all at the top service providers. We have routers installed in all those accounts. We have a high degree of credibility there.
And so the world is different now as we look at putting software networking into place. It's not about our credibility as a supplier, it's about how can we get help and go further faster. And so the proof-of-concepts are all underway in those accounts. Those partners are not -- those customers who enter our labs now where they have gear in place and software applications, networking applications running. But it's also very conservative of customer base and it takes them a while to make sure before they put something into production that’s absolutely reliable and meets with what they wanted to do. And it will take some months to quarter for them to fully qualify products before they roll it out. But it's a very interesting place to be an ICD. The acceleration not take much faster than what our physical devices when we first entered that market.
Mark Moskowitz - JP Morgan
And then my last question, another acronym is around FCoE. Just kind of -- if you give us your latest on FCoE, assume if you get a lot of attention a few years ago, but not really took all that, I think it's barely even around in there really from a financial impact perspective. So can you just layer in what rotates (inaudible) on FCoE if it is anything that investors should pay attention to?
Yeah. So, FCoE is the industry acronym for running fiber channel frames over Ethernet packets in an Ethernet network. The concept being can we use a more standard device that reduces the cost of deployment of a storage network? And I guess there are several dynamics there. One is, fiber channel is designed to meet specific requirements of the storage network, the traffic needs to be deterministic. The data needs to travel in a glossless way. So there is specific attributes that storage management requires.
Ethernet was not designed to do that, Ethernet is designed as a best efforts network packets [collide] and transit, packets have to be resent it hasn’t traditionally had the performance capacity or capabilities that the storage teams needed.
So FCoE was the idea, can we converge these together, is there a way to make that better together story. And what we’ve seen happen is that the physics of an FCoE network do not get us to the same place that storage traffic needs to be. With one exception, we can save significant amount of cost for a customer if we run converged fiber channel and Ethernet traffic from the back of the server to the top of the rack. And so we have devices, the market has other -- there is other vendors who provide a converged interface card for the server.
So fiber channel and Ethernet traffic can travel together and it will move to the top the rack to an FCoE switch. At that point in almost every case where FCoE is deployed, the traffic then splits and fiber channel -- storage traffic goes into a dedicated storage network and the data networking traffic goes into a dedicated Ethernet data network.
And that’s been used case, there are cost savings there, but it goes about 10 to 15 feet into the data center from the back of a server and then stops. As a result you see little investment in FCoE as a technology. And even as we push up the performance of the data networks from 1 gig to 10 gig to 40 gig to 100 gig even at those higher speeds the traffic still has issues going over a data network. In the fiber channel network it’s actually, continue to run at a higher speed than the data networking side and deliver the attributes to the storage administrators.
Mark Moskowitz - JP Morgan
Well Dan, thanks for your time, why don’t we [turn now] over to investor audience. I would ask that you could please raise your hands we can get the mic over so the web listeners can happen to ask.
Hi Dan. Just you mentioned divestitures, what should investors be thinking about potential line items or business units that you might want to get rid of?
So because we have dialogs underway, we're not talking about specifics. But what I would [stereo] to is they tend to be products that are in lower growth markets or ones that we determine the cost to continue to engineer and develop. We don’t see the return we want to get. But we haven’t made any formal announcement there or any more detail.
Hi. Can you talk about your partnership with Aruba Networks; it will be really interesting to know how the sales process is proceeding there? Are you training your sales guys to bring up the speed with some of the Aruba products, really nice to know how the partnership is proceeding?
So we’ve had a long standing relationship of meeting Aruba at the customer. And I think the federal government would be a great example that. So our sales teams have all us understood who the counterparts were within the Aruba organization because of the interoperability of the wired switches with the wireless. We’ve always need to make sure that the customers’ needs are met by working efficiently together in the field with sales engineering and the sales team. So that’s been kind of the legacy.
What we understand though is that some conversions of the wireless controller with the wired operating system is important to customers for an efficient deployment of the network. And so we now stepped up are relationship with Aruba to make investments actually in the technology itself, as well as looking at how do we mature the relationship in the field, so that when we see leads coming in for wireless we steer to our partner and kind of the same way, we would expect them to bring us into the wired opportunities basically when they are selling wireless. And just from a timing standpoint, we announced that kind of the [strengthening] of that relationship back in September, so we are still early days in working through that.
One last (inaudible) with one more question here. In your storage business you kind of been able to kind of run like the [government] in terms of not really that much competition over the past few years and even too obvious kind of stepping out of that business now on the fabric side with fix board side. What’s kind of your view on Cisco that they’ve seem to been lag or distract there or both when it comes technology at the instance, but they finally are introducing their 16 gigabit solutions now for the directors. Do you feel that could have any sort of impact on your business pricing dynamics or that’s too early?
Yeah. I think we generally view Cisco is rolling out their new product as a good thing for an entire ecosystem in the marketplace. We do know that a number of Cisco’s accounts were kind of installed in terms of making the decision about moving forward until they saw what Cisco is going to release into the market. As they’ve now begun to release their fifth generation product, it actually opens up sales cycles, as I said, they were frankly installed out.
And the kind of accounts they were selling to in nearly every case, the customer, procurement [pharma] require competitive bids. So we’re starting to see much more activity within their installed base that we hadn’t seen before. So, and we feel quite good about the technology we have in the market, the depth and range of the products we in our portfolio is much more advanced than what Cisco has launched.
If you think about it, we’re two years into this refresh and we’re already starting to work on the next generation product. So, we believe our class of customers has been quite happy with the innovation we've driven there. We believe that the Cisco installed base is probably less happy and it gives us a chance to win business there.
I think the other dynamic is since Cisco has launched, we haven’t seen any kind of diminishment of our share. And pricing is continued to stay fairly stable in this marketplace.
Mark Moskowitz - JP Morgan
All right. Thanks again Dan Fairfax, CFO of Brocade. I appreciate it.
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