Brocade Beats on EPS, But Comments Send Stock Lower

Brocade Communications Systems reported late Thursday a 60% jump in fiscal Q4 net income to $32 million, or $0.08/share. Excluding items including legal fees of $7.8M, Brocade earned $0.16/share, beating analyst estimates of $0.13. Sales surged 63% to $340M, compared to expectations of $341M. Shares of Brocade fell 1.8% to $7.60 in extended trading, after initially climbing as high as $7.97 (+3.0%), following CFO Richard Deranleau's cautious comments on the U.S. market. "We're still keeping a close eye on enterprise spending at a macro level and, as you have heard from several of our customers and partners, it is still a mixed environment out there," said Mr. Deranleau during the company's earnings conference call. Declining y/y gross margin, 58.5% vs. 62.1%, also may have influenced sellers, although it was an improvement sequentially (55%). Brocade reaffirmed its FY-2008 adjusted EPS guidance of $0.55 to $0.60 (vs. analyst expectations of $0.60), and said it expects Q1 adjusted EPS of $0.14 to $0.16 on sales of $345M to $360M, compared to analyst estimates of $0.14 on sales of $360M. In a post-earnings note, Citigroup analyst Paul Mansky, who has a $10/share price target on Brocade, commented, "We view last night's earnings report as the last significant barrier to our Buy thesis and with expectations realistically reset, we would aggressively build positions here." Brocade's three-largest customers, EMC, HP, and IBM accounted for 67% of total Q4 revenues, compared to 74% last year and 64% in Q3. Brocade said in Q4 it repurchased $50M of its common stock, or 6.6M shares, and said its Board authorized an additional $500M of buybacks. Brocade gained 0.5% to $7.74 during normal trading Thursday.

Sources: Press release, Dow Jones
Commentary: PXQ is Flying High: Watch Out for Sharp Fall • Brocade Posts Drop in Q3 Net, But Edges Expectations
Stocks to watch: BRCD. Competitors: CSCO, QLGC, ELX. ETFs: PHW, PXQ

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