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Brocade: No slowdown in storage spending

Dave Raffo

Brocade Communications Systems Inc. CEO Mike Klayko said the switch vendor didn't see the slowdown in spending among financial services firms that other storage companies reported last quarter. He also said that he expects the ongoing expansion in digital data to override corporate budget restraints next year.

"Even in this quarter on the heels of some unfortunate industry results, the financial services sector accounted for a number of our largest transactions," Klayko said Thursday night during Brocade's earnings call. "This data growth trend will continue to be a growth driver for us as this digital data keeps proliferating and the management of this data is a priority."

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Brocade reported $340 million in revenue last quarter, a 63% increase from last year in a quarter in which Network Appliance Inc., IBM, Symantec Corp., Cisco Systems Inc. and other market leaders said they noticed a slowdown in spending from financial services firms that are traditionally large storage customers.

Klayko said Brocade is well-positioned for 2008, with close to one-third of its customers planning to redesign their data centers and his company set to launch 8 Gbps switches, host bus adapters (HBA) and a backbone director for its new data center fabric framework in the next six months.

Still, Brocade's forecast of between $345 million and $360 million in revenues for this quarter was lower than financial analysts expected and shows that challenges lay ahead.

"We believe this reflects some conservatism with regard to enterprise spending," Wachovia analyst Aaron Rakers wrote in a note to clients, although he pointed out Brocade was "surprisingly positive with regard to financial services and trends in Asia-Pac/Japan."

Brocade will try to make its push with 8 Gbit technology and its new data center fabric in 2008, but might encounter some resistance from customers.

Brocade got a big bump by being the first switch vendor to offer 4 Gbps switches in 2005. But customer adoption of 8 Gbps equipment will likely go slower. While 4 Gbps switches cost roughly the same as 2 Gbit switches, the move to 8 Gbps involves a significant price hike.

Furthermore, the rest of the storage ecosystem isn't as bullish on 8 Gbit as Brocade. Although HBA vendors Emulex Corp. and QLogic Corp. promise 8 Gbps products early next year, it's unlikely that any of the major storage systems vendors will have 8 Gbps systems in the first half of 2008, and disk drive vendors may never offer 8 Gbps Fibre Channel drives.

As Brocade pushes its data center fabric, it also gets into more competitive product areas with Cisco. Brocade is also trying to make a stand in new markets, such as HBAs and its file area network (FAN) software. However, on the first front the company will compete with established HBA vendors Emulex and QLogic, and with some of its storage OEM partners in FAN software.

Klayko did say that Brocade would look to acquire more companies "where appropriate" . . . and not necessarily software vendors. "We have an overall strategy and framework called data center fabric," he said. "There's a lot of componentry there and a lot of opportunity [for acquisitions]."


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