Brocade Communications Systems maintains silky smooth computer network operations. A leading supplier of data center networking products, Brocade makes Fibre Channel switches and related software for connecting corporate storage systems and servers. Its products are used in storage area networks (SANs), which pool storage resources across enterprises for easier management and more efficient asset utilization. The company's switches reroute data upon path failure and reconfigure the SAN when new devices are added. Brocade's products support Internet connectivity and enterprise mobility, as well as key technologies such as software defined networking (SDN) and cloud computing. It generates more than half its sales from the US.
Brocade's products are made by such contract electronics manufacturers as Hon Hai Precision (Foxconn Electronics), Accton Wireless Broadband, Motorola, and Quanta Computer. The company also relies on Flextronics International for service repair.
SAN products -- which include switches, directors, and other products used for data storage - account for about 60% of sales. IP networking products (Ethernet switches and routers for network connectivity) and global services (maintenance, installation, consulting, and other assistance) contribute about 25% and 15%, respectively.
The US is the company's largest market, accounting for just more than 60% of sales. Outside the US, it gets a quarter of sales from the EMEA region. The Asia-Pacific region accounts for more than 10% of revenue, with Japan that region's largest market.
Sales & Marketing
Brocade sells directly, as well as through systems integrators, distributors, and value-added resellers. EMC, Hewlett-Packard, and IBM together generate more than 45% of the company's sales.
Brocade has experienced solid growth over the past half dozen years, although revenue fell slightly (1%) to $2.22 billion fiscal 2013 (ended October). Increased sales in both the IP networking and global services segments were not enough to offset a 3% decline in SAN product revenue, which fell on weaker demand in the high-end storage array market. The company saw declines across all geographic markets, except EMEA, which jumped 12% as more of Brocade's OEM customers shifted products from the US to Europe, the Middle East, and Africa.
Notwithstanding the dip in revenue, the company's net income rose 7% to about $209 million on tight control of costs and expenses as part of a cost-reduction plan implemented in fiscal 2013. Cash from operations was $451 million that year, down nearly 25% from fiscal 2012; the results were impacted by increased payments related to accrued employee incentive compensation and accounts payable.
Brocade feels it is well-positioned to capitalize on emerging trends such as software defined networking, virtualization, and cloud computing; its goal is to offer its clients clear upgrade opportunities as they embrace these new technologies. In addition to occasional acquisitions that support this strategy, the company focuses on partnerships and research and development. It spent nearly $380 million on R&D in fiscal 2013, compared to $363 million and about $355 million in fiscals 2012 and 2011, respectively.
In 2013, specifically, Brocade began investing in data center and public sector market opportunities. Along with a few other changes in its focus, the company adopted a cost-reduction plan.
Mergers and Acquisitions
In late 2012 the company purchased network virtualization software provider Vyatta. The deal opens Brocade to new opportunities in the data center virtualization and virtual private cloud computing markets.