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Brocade says its FC SAN sales disappointed last quarter

Maybe Brocade has been a little over-optimistic about Fibre Channel SANs.

After Brocade executives gushed bout how lucrative the FC market remains on the switch maker’s last earnings call, the vendor Wednesday said the quarter that just ended didn’t go as planned.  Brocade downgraded its forecast for the quarter, mainly because of a sharp drop in its SAN revenue.

Brocade said its overall revenue in the quarter that ended Tuesday would be between $536 million and $541 million, down from its previous forecast of $555 million to $575 million. FC SAN revenue is now expected to come in between $373 million to $376 million, down six percent to seven percent from last year and 10 percent to 11 percent from last quarter. Brocade said revenue for the quarter that ends in April typically drops five percent to eight percent from the previous quarter, which includes the end-of-year budget flush from many storage shops.

According to Brocade’s press release, “the lower-than-expected SAN revenue was duo to storage demand softness in the overall market which impacted the company’s revenue from some of its OEM partners.”

Two of its largest OEM partners, EMC and IBM, reported disappointing results for last quarter. EMC missed Wall Street’s estimates for revenue and IBM continued its trend of declining storage hardware sales. According to EMC CEO Joe Tucci, “customers are still being very cautious with their IT spending.”

At least Brocade’s Ethernet business is going as expected. The forecast is for $163 million to $165 million in revenue, up 14% to 15% from last year and down four percent to five percent from the previous quarter.

After Brocade’s last earnings report in February, its new CEO Lloyd Carney said his optimism about FC SANs was one of the reasons he took the job. “Fibre’s not dead anymore,” he declined.

Maybe it’s just napping. In Brocade’s release Wednesday, Carney hinted that the FC SAN revenue drop will not be permanent.  “We believe that by leading the Fibre Channel industry with innovative technology and solutions that are relevant to the problems that customers face today, Brocade continues to be well-positioned for long-term success in the data center,” Carney said.

It may not help Brocade that its switch rival Cisco is rolling out its first major FC product overhaul in years, and is upgrading to 16 Gbps FC nearly a full year after Brocade.

Brocade will give its full earnings report May 16.

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