Ethernet equipment

Brocade's Second Shot

5:50 PM -- Brocade Communications Systems Inc. (Nasdaq: BRCD) gets its shot at redemption on May 20, when it delivers its first quarterly report after admitting to big mistakes in its Ethernet business.

The company's first-quarter report, in February, saw Ethernet sales fall 26 percent from the previous quarter. Ethernet represents about 18 percent of Brocade's revenues, compared with storage at 65 percent, but a 26 percent drop on the heels of the Foundry Networks acquisition was cause for concern. (See Brocade Reports Q1, Brocade/Foundry Readies Ethernet Invasion, and Brocade Takes Aim at Cisco (& Juniper).)

The problem was not in the former Foundry products, but in the way they were being sold, Brocade officals said. Among the factors: Brocade's OEM partners -- especially Dell Technologies (Nasdaq: DELL) and IBM Corp. (NYSE: IBM) -- didn't create business as magically as expected. Brocade vowed to revamp sales and pursue customers more actively. (See IBM to Resell Brocade/Foundry Gear.)

"The lesson learned is that Brocade and Foundry had different sales models and Brocade is reverting to the direct sales model with classic Foundry accounts," analyst Mark Sue of RBC Capital Markets wrote in March.

The real rewards of those changes will come later in the year, analyst Ittai Kidron of Oppenheimer & Co. Inc. wrote in a Tuesday morning research note: "We think the business could remain challenged and inconsistent in the near term." Expect Brocade to get grilled on the topic on its earnings call, though.

For Brocade's second quarter, which ends in April, Kidron expects the company's sales to meet analyst expectations -- that would be around $502 million, down from $539.5 million the previous quarter, according to Thomson Financial .

— Craig Matsumoto, West Coast Editor, Light Reading

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