Brocade ties its hopes to storage capacity, not pricing

If the largest storage array vendors that sell Brocade’s SAN switching are getting hit with declining revenue every quarter, that’s bad news for Brocade, right?

If you agree with that, then you’re missing the big picture, according to Brocade CEO Lloyd Carney. Carney said it doesn’t matter if people are buying their storage from big vendors or small, using flash or hard disk drives, or putting their data on premise or in the cloud. He says that if storage capacity grows, that’s good for Brocade because Brocade is one of only two vendors that sells the switching – Fibre Channel and Ethernet – that storage systems require. And storage capacity is growing, even if people are paying less for it.

“The knee-jerk reaction that a lot of us have is, storage dollars are coming down so something must be wrong with Brocade,” Carney said on Monday’s Brocade earnings call with analysts. “Well as long as storage capacity grows, Brocade is fine.”

At another point on the call, he said: “As long as storage capacity is growing, whether it’s Fibre Channel or IP-based, we will be successful.”

Carney’s optimistic outlook was justified last quarter. Brocade’s $588.8 million in revenue was better than its previous forecast, and its $324.9 million of SAN revenue was far above expectations. Overall SAN revenue was about the same as last year while most storage vendors saw revenue declines last quarter, and Brocade’s large director switch revenue improved 14% over last year.

Carney was less optimistic for this quarter, though. Brocade’s forecast of revenue from $550 million to $570 million is below the $589 million it did in the same quarter last year, and it expects SAN revenue to grow no more than three percent compared to an average gain of nine percent in this quarter. Brocade still predicts growth for the full year in 2016, however.

Carney said Brocade won’t get squeezed like the big storage vendors because it doesn’t face nearly as much competition. There are a bunch of smaller storage array vendors trying to take customers from the likes of EMC, NetApp, Hewlett Packard Enterprise, Hitachi Data Systems, IBM and Dell. On the SAN switching side, it’s Brocade and Cisco. And SAN switching is a small part of Cisco’s business.

“We are better positioned than the people who sell raw storage from a competitive standpoint,” he said.

Carney said Brocade’s plan to beat Cisco is to innovate – he pointed to non-disruptive monitoring and analytics added last quarter – and expand its partner base. Brocade recently broadened partnerships with Huawei and Lenovo with the intention of expanding its business in China.

As long as storage capacity expands, Brocade’s CEO expects to take in its fair share.

“Despite what is happening at EMC or NetApp or overall, people are buying more storage,” Carney said. “You yourself are using more storage. You’re sending pictures, you’re sending video content. So everybody is using more storage.

“Now, the price per megabyte or per terabyte of storage is coming down, because it’s such a competitive marketplace. However, the connectivity into that storage, the layer at which we play, is not as competitive a place.”