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 24% and 16%, respectively.
The US is the company's largest market, accounting for just less than 60% of sales. Outside the US, it gets 27% of sales from the EMEA region. The Asia-Pacific region accounts for more than 12% 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 posted its second straight year of declining sales in 2014 after steadily sales over the previous half dozen years. Revenue fell about half a percentage point to $2.21 billion in 2014 from $2.22 billion in 2013. Higher sales in SAN products and global services didn’t offset a 5% revenue decline in the IP networking segment. Geographically, sales fell in the US and Japan while rise in Europe, Canada and South America.
Notwithstanding the dip in revenue, the company's net income rose a robust 14% to about $238 million on tight control of costs and expenses as part of a cost-reduction plan and a gain from the sale of its network adapter business. Cash from operations was $541 million in 2014, a sizeable jump from 2013’s $451 million. Cash came from increased collections of accounts receivable, higher net income, and higher prepaid expenses.
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. Its R&D spending dropped to $345 million in 2014 from $380 million the previous year.
The company plans to support SAN and IP Networking growth by making strategic investments, developing emerging technologies (such as SDN, network function visualization (NFV), and Network Vulnerability Analysis, new products, and enhancing its existing partnerships and forming new ones through its various distribution channels.
In 2013 the company changed strategic direction by focusing on key technology segments, such as its SAN fabrics, Ethernet fabrics, and software networking products, for the data center. As part of change in focus, the company reduced its cost of revenues and other operating expenses by $100 million on an annualized basis when comparing the first quarter of fiscal year 2014 to the first quarter of fiscal year 2013.
In 2014, Brocade sold its network adapter business to QLogic Corporation, as part of the Brocade’s business strategy to focus development on a portfolio of high performance networking products and services -- both hardware and software-based.
Mergers and Acquisitions
In 2014 Brocade acquired Vistapointe Inc., an start-up developer of network visibility and analytics for mobile network operators, for about $17 million. The acquisition aided Brocade’s efforts in NFV technology.
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.