Brocade Not For Sale, Despite Layoffs

Brocade is laying off 300 and closing facilities, but says it is not for sale

Brocade Communications wants people to know a few things:

Brocade is definitely not for sale.

Brocade is still the leader in the (shrinking) Fibre Channel storage market.

Brocade beat analysts’ expectations in its latest quarterly financial statement.

Oh, and Brocade is also laying off 7 percent of its workforce and shuttering several facilities to try to save $100 million by the time its fiscal year ends Oct. 31.

News of the layoffs to Brocade’s global staff of 4,180 was tucked into the 8-K report the company filed Sept. 10, but were extracted by British news outlet The Register.

Despite rumors that have been circulating for years, Brocade has never been up for sale, is not currently up for sale and doesn’t plan to put itself up for sale, according to Brocade spokesperson Katie Bromley in a Sept. 10 interview with The VAR Guy.

Company CEO Lloyd Carney said the same thing to Bloomberg News in January, contradicting a long list of stories going back to at least 2009 that predicted Brocade was looking for a buyer.

Brocade’s policy is to not comment on rumors, Bromley said, which explains why the company has not squashed previous chatter. It doesn’t explain why it would leap up to deny an offhand reference in a Sept. 9 VAR Guy blog post referring to Brocade as “a company that has been up for sale since December 2009,” though that post didn’t include a link to the long list of stories citing acquisition rumors that was included in today’s edition.

It’s probably just coincidence that the denial of acquisition rumors came out the same day as an 8-K report listing layoffs and facility closings under the heading Costs Associated with Exit or Disposal Activities (PDF).

The layoffs and closures are an effort to shift resources from Brocade’s current business, which revolves around sales of Fibre Channel (whose impending death is also exaggerated) to a model that balances datacenter storage, datacenter fabrics and Software Defined Networking (SDN) as well as Storage Area Networks (SANs), in an effort to keep up with a fast-changing market.

Fibre Channel, which is used primarily in SANs, is gradually losing ground to other protocols, including iSCSI and FCoE, which ride on top of 10Gbit/sec Ethernet, rather than the more expensive, more finicky Fibre Channel.

The market for SAN products dropped 10 percent, to $594 million, during the first quarter of 2013, according to a June report from Dell’Oro Group.

A strong second quarter for datacenter networking sales did boost the numbers for Fibre Channel Switching, according to an Aug. 29 report from Crehan Research. But Fibre was largely riding on the coattails of 10Gbit/sec Ethernet, and Brocade rival Cisco got the best of the boost as spiking sales of its MDS 9700 Director switch drove Cisco’s Fibre Channel revenue up by 40 percent compared to 2012, the Crehan report found.

Brocade did post revenues of $536.6 million for its fiscal third quarter, which works out to income of 19 cents per share, substantially higher than the consensus Wall Street expectation of 12 cents.

Brocade’s stock rose more than 15 percent to a 52-week high on the news, even though actual revenue dropped 3.5 percent from the same quarter last year, when it pulled in $555.3 million.

Rumors that Fibre Channel is becoming passé have more to do with hype over Ethernet than weakness in Fibre Channel, according to market breakdown by IDC analyst Ashish Nadkarni. Brocade is moving in the right direction by expanding into SDN, pushing the new-generation 16Gbps Fibre Channel, focusing more on its datacenter fabric and acknowledging the need for more interoperability with OpenStack and other, newer datacenter plans, Nadkarni added.

But that doesn’t mean it’s out of the woods yet. Though it has done well enough with the SAN business that makes up 61 percent of its revenue, the company hasn’t pushed hard enough on Fibre Channel or, alternately, hard enough on non-Fibre technologies to create much long-term optimism, according to Rajesh Ghai, analyst at financial-analysis firm Craig Hallum, as quoted in Reuters.

“The company hasn’t performed that well in the past,” Ghai said in the Aug. 13 story. “It has kind of come out and executed against the low bar.”

Right now, at least, things are looking up for Brocade, according to stock-analysis site Zacks.com, which rated it a Buy.

As of Sept. 9, in fact, Brocade stock price of $7.70 was 21.8 percent above what Wall Street analysts thought it was worth; that’s 50 percent higher than its 52-week low of $5.14 in July.

None of that means anything specific about whether Brocade is now or ever was up for sale. After years of silence on the topic, however, Brocade decided yesterday to say, specifically, it is not.

Image: Brocade Communications

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