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Brocade FC storage sales down, and will stay there for now

Brocade’s earnings for last quarter show a decline in storage sales consistent with what large array vendors have reported.

The Fibre Channel switch vendor’s forecast for this quarter shows that decline is likely to continue.

As the leading FC switch vendor, Brocade’s revenue is tied into the sale of SAN arrays. With the industry in transition to cloud storage, server-based storage systems such as hyper-convergence and new all-flash arrays cutting into adoption of traditional FC storage arrays, storage vendors have seen revenue decline over the past year. Brocade CEO Lloyd Carney said on his Thursday earnings call that he expects FC storage to bounce back by the end of the year but not before it declines more than previously expected this quarter.

Carney said the steep decline in Fibre Channel revenue hit directors and switches. “SAN revenue was weaker than we expected,” he said. “The weakness was broadly spread across our partner base and appears to indicate lower overall storage spending.”

Brocade’s reported revenue of $523 million decreased four percent from last year and nine percent from last quarter. FC SAN revenue of $297 million fell five percent year-over-year. IP (Ethernet) networking revenue – roughly one-quarter of Brocade’s business – fell nine percent year-over-year to $132 million. But Brocade forecast an increase of seven percent to 14% in Ethernet sales this quarter due to a swift uptick federal and enterprise spending. Meanwhile, it expects FC sales to drop from 3.5% to seven percent over last year to $510 million to $530 million. Carney said he does expect a rise in FC spending next quarter and predicted revenue declines for the full year will be around two percent.

“There are a lot of really big deals in the pipeline,” Carney said of his optimism for next quarter.

Brocade is counting on 32 Gbps switching products and flash storage to give FC a long-term jolt but that hasn’t happened yet. Flash arrays sales are picking up but not the switching that goes with them, and 32-gig (Gen 6) FC won’t become mainstream before 2017.

Brocade is shipping its first 32-gig FC switch, the G620, with 32-gig directors and embedded switches expected in August. But bandwidth upgrades usually occur slowly, and end-to-end 32-gig support will also require upgrades from storage array vendors.

“We see good interest in [Gen 6], products are being well-accepted, and we’re pretty excited about it,” Carney said.

Flash arrays are becoming popular now, with most storage vendors reporting large increase in all-flash systems even as their overall storage sales drop. But Brocade executives said customers are still planning their upgrades and how they will affect their switching.

“It’s causing some of these customers to have to take a look at their architecture, see how these build-outs happen going forward, and there is some bit of a pause [in buying],” Carney said.

“Although all-flash has been here for a couple years and grown pretty fast, it’s really been a small part of the overall storage marketplace. Now, that’s changing because all the large players have all-flash arrays, and they’re growing very fast. They’re putting a lot of resources behind it. For us, the good news is most of them connect using Fiber Channel. Now, they’re more efficient, so they need less storage. But storage is still growing. So it kind of works out.”

Carney said Brocade also hopes to receive a sales jolt from hyper-convergence. Hyper-converged systems are seen as harmful to FC because they often replace SANs. But Carney said he expects that to change as hyper-converged rack-scale products such as EMC’s VxRack and the Hitachi Hyper Scale-Out Platform pick up steam.

“If you are buying individual hyper-converged platforms, you don’t need us as part of the solution, the storage is already in there,” he said. “If you want to connect two or three hyper-converged boxes together, the best way to do that right now is Fibre Channel.”