Brocade (NASDAQ:BRCD) guides in its earnings slides (.pdf) for FQ1 revenue of $560M-$580M and EPS of $0.23-$0.25. SAN revenue is expected to rise 5%-7% Q/Q (seasonal strength), an IP networking revenue to fall 8%-14% (federal and service provider weakness). Services revenue is expected to rise 1%-3%.
FQ4 SAN revenue was roughly flat Q/Q and Y/Y at $379M, and up 2% Y/Y when adjusted for the sale of Broacade's adapter business to QLogic. Director (high-end switch) revenue fell 5% Y/Y and server product revenue (hurt by the QLogic deal and soft OEM demand) 27%, but standard SAN switch revenue rose 6%.
IP networking revenue rose 12% Q/Q and 4% Y/Y. A pickup in router demand and a 38% Y/Y increase in U.S. federal sales drove the growth.
Gross margin was 67.7%, +50 bps Q/Q and Y/Y, and beating guidance of 66%-67%. FQ1 guidance is at 66.5%-67.5%. Opex was 40.9% of revenue vs. 41.5% in FQ3 and 40.6% a year ago. $33M was spent on buybacks.
EMC, H-P, and IBM accounted for 44% of revenue, down from 48% in FQ3 and 46% a year ago.
Though Brocade (BRCD +2.3%) is best known for its storage and IP networking hardware, this year's investor day saw Brocade's traditional offerings "[share] the stage with software for analytics, network function virtualization (NFV), and software defined networking (SDN)," notes Wunderlich, reiterating a Buy and upping its target by $1 to $12.
Wunderlich also notes management highlighted opportunities for Brocade's VDX Ethernet switches in IP storage deployments. It takes this as a sign the company is bringing network management/automation features found in its Fibre Channel switches to Ethernet gear, and thereby "participate in some of the growth" being enjoyed by data center switch upstart Arista (NYSE:ANET). Arista relies heavily on management/automation features to differentiate its data center switches.
CEO Lloyd Carney mentioned Brocade now has 50 trials with carriers for its NFV offerings (previous), and predicts will arrive in 2016. Brocade also talked up its Vyatta unit's newly-launched SDN controller, which supports the open-source OpenDaylight SDN platform. "Brocade is to OpenDaylight what Red Hat is to Linux," claimed one exec (perhaps exaggerating a bit).
Shares managed to rally on a rough day for tech stocks.
Brocade (NASDAQ:BRCD) guides in its earnings slides (.pdf) for FQ4 revenue of $550M-$570M and EPS of $0.21-$0.23, in-line with a consensus of $561.3M and $0.22.
In spite of the Fibre Channel struggles seen by adapter card/embedded switch vendors Emulex and QLogic, Brocade's SAN product revenue (60% of total) rose 1% Q/Q and 4% Y/Y in FQ3 to $325M. SAN switch and director sales respectively rose 9% and 5% Y/Y, offsetting an adjusted 11% drop in server product (adapter/embedded switch) sales.
IP networking revenue rose 9% Q/Q and fell 1% Y/Y to $133M; the Y/Y drop is better than FQ2's 9%. Router weakness, product strategy changes, and the sale of Brocade's adapter card business to QLogic offset switch growth.
SAN products are expected to be down 1%-2% Q/Q in FQ4, and IP networking up 6%-15%. Geopolitical issues and transitions at OEM partners (i.e. IBM) are expected to weigh on SAN revenue, while high-density router launches and federal seasonality are expected to boost IP networking.
Gross margin rose 50 bps Q/Q and 160 bps Y/Y to 67.2%, beating guidance of 65.5%-66.5%. FQ4 GM guidance is at 66%-67%. $112M was spent on buybacks. EMC/IBM/Hitachi made up 48% of revenue vs. 47% a year ago.
Brocade (NASDAQ:BRCD) and European/Latin American carrier Telefonica state Brocade's Vyatta 5600 software-based router delivered 80Gbps transfer speeds in lab tests carried out on a commodity Intel-based server.
Telefonica: "In less than two hours, we deployed the Brocade Vyatta 5600 vRouter from a memory stick ... These results are allowing us ... to aggressively change our perspective regarding what is possible with software-driven networking."
Brocade asserts the 5600's performance soundly exceeds that of most virtual (software-based) networking gear. "It's been less than one gig -- sometimes more like a couple hundred megs. For carrier-type applications, it became really important to have a much better performance."
The 5600, like some other software-based networking products, is aimed at network functions virtualization (NFV) deployments, through which carriers aim to replace proprietary systems with ones running on commodity servers.
Brocade (BRCD) guides in its FQ2 earnings presentation (.pdf) for FQ3 revenue of $525M-$545M and EPS of $0.18-$0.20, in-line with a consensus of $531.7M and $0.19.
SAN product sales (60% of revenue) -10% Q/Q and +1% Y/Y, putting them at the high end of a guidance range of -10% to -13% Q/Q. IP networking +1% Q/Q and -9% Y/Y, near the low end of a guidance range for flat to 7% Q/Q growth.
Brocade expects FQ3 SAN revenue to be down 2% to up 1% Y/Y on an adjusted basis, with "business transitions" at certain OEM partners taking a toll (could be a reference to IBM). QLogic and Emulex have already reported the Fibre Channel SAN market is weak.
IP networking sales are expected to be up 2%-8% Y/Y on an adjusted basis, boosted by enterprise customer growth.
FQ2 gross margin was 66.7%, -100 bps Q/Q and +160 bps Y/Y. GM is expected to drop to 65.5%-66.5% in FQ3. Headcount fell by 16 Q/Q and 587 Y/Y to 4,061.
$50M was spent on buybacks, down from $140M in FQ1. EMC, IBM, H-P, and Hitachi made up 56% of revenue between them.
Citing deteriorating Fibre Channel business trends, Summit Research has downgraded Brocade (BRCD -2.5%) to Sell from Buy, and set a $7 PT.
The downgrade comes after storage adapter/card switch vendors Emulex and QLogic both offered weak guidance and reported Fibre Channel product sales were under pressure. QLogic estimated the market is declining at a 6%-7% rate.
Brocade's SAN product revenue (61% of Jan. quarter revenue) depends heavily on Fibre Channel switch sales. The company has been taking share from top rival Cisco, aided by a head start in offering 16G switches.
FQ2 results are expected to arrive later this month.
On top of missing FQ3 sales estimates (while hitting EPS forecasts), Emulex (ELX -24.7%) is guiding for FQ4 revenue of $94M-$100M and EPS of $0.00-$0.05, well below a consensus of $115.7M and $0.18.
Storage adapter card/controller/switch archrival QLogic (QLGC -6.1%), which reports after the close, is off in sympathy, as is storage switch leader Brocade (BRCD -2.4%). Mellanox (MLNX -1.7%), which competes against Emulex in the 10G Ethernet adapter space, is also declining; its shares already tumbled last week due to a Q1 miss and soft guidance.
On its CC (transcript), Emulex mentioned its network connectivity product sales (71% of revenue, dominated by Fibre Channel storage offerings) fell 9% Y/Y, as Fibre Channel weakness more than offset 10G Ethernet growth. The FC issues are blamed on UNIX server weakness (sales have been in freefall for a while) and "specific issues" with an x86 server OEM (likely IBM).
Moreover, in remarks with clear implications for QLogic/Brocade, Emulex says it now expects a "higher rate of secular decline in the Fibre Channel business than previously anticipated." Its own FC sales are now expected to fall at a high-single to low-double digit Y/Y clip vs. prior guidance for a mid-single digit drop.
Also, Emulex's network visibility product sales (Endace, 6% of revenue) came in below expectations, and its legacy storage connectivity/other business (23% of revenue) is expected to fall 10%-15% in FY14 and perhaps over 30% in FY15.
An April Barclays survey of 100 U.S. and European CIOs found 46% expecting their company's IT spending to rise in 1H14, 20% expecting it to drop, and 34% expecting no change. Those figures compare with September survey levels of 43%, 27%, and 30%.
Moreover, IT spending growth is seen accelerating in 2H in both the U.S. and Europe. Barclays thinks larger budgets, macro stabilization, and a need for equipment refreshes (due to high utilization rates) could be helping out.
At the same time, the firm cautions the spending growth is uneven: Software, networking, security, and cloud services demand is healthy, but servers, storage, and IT services remain soft. Interest in the concept of a software-defined data center is gaining traction, but big data (hyped considerably last year) is losing it for now.
Gartner has forecast IT spending will rise 3.2% this year to $3.77T after growing just 0.4% in 2013. Enterprise software (+6.9% to $320B) is expected to lead the way.
Barclays thinks its survey bodes well for H-P (HPQ), Juniper (JNPR), F5 (FFIV), Aruba (ARUN), Ingram Micro (IM), and CDW, each of which is rated Overweight.
Brocade Communications Systems Inc is a supplier of networking equipment, including Internet Protocol based Ethernet networking solutions and storage area networking solutions for businesses and organizations of many types and sizes.