Brocade: Revenue Up Despite Soft Carrier Demand
Brocade saw decreased demand from carriers for routers, but increased revenue and profitability, according to quarterly earnings announced Thursday.
Brocade Communications Systems Inc. (Nasdaq: BRCD) announced revenue of $545 million, up 2% year-on-year and 2% quarter-to-quarter for the third quarter ending August 2. GAAP diluted earnings per share were $0.20, down from $0.26 in the year-ago-quarter and up from a loss per share of $0.03 in the second quarter of this year.
"With another solid quarter behind us, we are seeing the tangible benefits of our data center-focused strategy," Brocade CEO Lloyd Carney said in a statement. Brocade's SAN business has "resiliency and durability" and VDX switch sales are "strong" and "validate our strategic direction."
IP networking business revenue, including products and services, generated $166 million, down 1% year-over-year and up 5% sequentially. The sequential increase was primarily due to higher sales of Ethernet switching products to the US federal government and strong VDX sales to data center customers, Brocade said.
Routing product revenue decreased 19% year-over-year and 20% sequentially, primarily due to customers waiting for new products scheduled to be released in fiscal Q4 2014.
Those new products are 100Gbit/s VDX blades, which faced manufacturing delays pushing them back to the next quarter. The products are scheduled to ship in the next two or three weeks, and Brocade many see difficulty meeting demand. None of the revenue is lost; it's just been delayed, said Jason Nolet, Brocade vice president, data center and campus networking, on the company's earnings call with analysts Thursday.
Brocade anticipates IT networking will be up 6% to 15% in the next quarter, primarily driven by increased demand in the carrier market for new products.
Carney called out Telefónica SA (NYSE: TEF) benchmarking results as a recent highlight. Tests run by Telefónica in its labs show Brocade's software-based router can achieve 80Gbit/s throughput, matching the performance levels required for carrier applications and setting a benchmark that supports NFV deployment. (See Telefónica Proves Brocade Router Performs for NFV.)
Vyatta is another bright spot for Brocade; the software networking platform has been adopted by one of the world's largest cloud service providers, and is involved in about 30 proofs-of-concept with Tier 1 providers. Brocade expects to see production implementation in early 2015, CFO Dan Faifax said. (See Brocade Weaves Software-Based Networking Strategy .)
Brocade is also aggressively pursuing NFV customers, looking to maximize market share now and worry about margins later.
Brocade traded at 9.77, up 3.83% at 7:58 pm EDT in after-hours trading.