Brocade: Recession dampens data-center trials

The ailing economy is leading some enterprises to put off transforming their data-center networks with emerging technologies such as FCOE (Fibre Channel over Ethernet), Brocade Communications' CTO said Thursday.

IT managers are delaying transitions to converged networks that use a single protocol across both the storage and server areas of a data center, CTO Dave Stevens said in an interview after the company announced a steep increase in revenue for its first fiscal quarter, which ended Jan. 24.

It was the first quarter since Fibre Channel storage network pioneer Brocade acquired Foundry Networks, an Ethernet LAN vendor. FCoE and Converged Enhanced Ethernet (CEE) are two emerging standards designed to combine the strengths of Fibre Channel and Ethernet.

"People are pushing back on trialing converged infrastructure right now," Stevens said. That reflects a greater selectiveness in pursuing IT projects as enterprises move into a mode of buying just what they need, he said.

However, growing network traffic and collections of data, along with requirements to keep data for longer periods, are forcing enterprises to upgrade their networks, he said. In doing so, they are saving money by consolidating ports in fewer platforms, such as large Ethernet switches that can accommodate as many connections as 10 smaller boxes, Stevens said.

"The FCOE stuff and the CEE stuff seem to be pushing out a little bit, and there seems to be more emphasis on the Ethernet side and the Fibre Channel side to implement high-density switching systems in both of those environments," he said.

Brocade reported revenue of $431.6 million for the quarter, up 8 percent from the previous quarter and 24 percent from a year earlier. That figure included about one month of revenue from Foundry, which was folded into the company in late December. It fell short of the consensus forecast of analysts by Thomson Reuters, which was US$441.7 million.

The company posted a loss of US$26 million, or $0.07 per share, because of one-time items that mostly were associated with the Foundry deal, according to Stevens. Not including those items, Brocade earned US$63.6 million or $0.15 per share, exceeding the consensus forecast of analysts by Thomson Reuters, which was $0.13 per share.

Brocade reported the integration of Foundry is ahead of schedule and that "the vast majority" of Foundry employees have remained on board. Brocade has been reorganized to focus on three market segments: Data center infrastructure, campus networks, and service-provider infrastructure, Stevens said. Engineers from both companies are working together on the next generation of technology, such as FCOE gear, but the traditional Fibre Channel and Ethernet product lines will remain and be updated for the foreseeable future, he said.

The biggest challenge in integrating the businesses has been allocating engineers and funding among the Ethernet, Fibre Channel and converged-infrastructure categories, Stevens said.

For fiscal 2009, Brocade predicted IT spending would continue to be held down by economic conditions but start to pick up in the fiscal fourth quarter and the next fiscal year. It forecast annual revenue of $1.9 billion to $2 billion, up from about $1.5 billion in fiscal 2008. But the company sees revenue rising only slightly in the following fiscal year, giving a revenue range for planning purposes of $2.1 billion to $2.2 billion for fiscal 2010.

In after-hours trading late Thursday, Brocade's shares on the Nasdaq (BRCD) were down $0.10 at $3.28.

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