Demand for data storage is rising exponentially with the rise in data. In the age of cloud enabled application, Brocade Communications (BRCD, Financial) is steadily stepping up its offerings and catering to the need of various customers with its high-end solutions for Storage Area Networks (SAN). But the going has been tough of late and recovery might take some time.
The company recently posted its third quarter results for the fiscal 2014 and its results came in better than analysts' estimates. It posted revenue of $545 million, up by 2% year-over-year and also 2% sequential quarter gain. The non-GAAP gross margins were up by 1.6% year-over-year, to record 67.2%, compared to 65.6% in the same term last year.
The balance sheet of the company seems to be improving mainly in the use of working capital. A recent acquisition of Vyatta business is bolstering software networking capabilities. It is also focused on its share repurchase policy to keep its investors satisfied.
Journey ahead
The future of the storage market is bright and is anticipated to be worth $37 billion by 2017. Brocade seems to be confident about its growth. It anticipates revenue from SAN will also increase in the ongoing quarter. Also, SAN contributed heavily to total revenue, which means that Brocade should benefit from the storage industry's growth as a majority of its revenue comes from this segment.
International development
Brocade experienced a setback in its European business mainly due to the economic recession. But as Europe recovers, Brocade should see better times in the future and be able to report revenue growth.
Brocade's business alliance with Net One Systems, the largest system integrator company in Japan, gives it access to new growth opportunities in data centers and service providers in Japan. According to market research firm IDC, the IT market in Japan is estimated to be around $110 billion every year which comprises of hardware, software and services. In the future, Brocade and Net One's alliance should result in impressive growth for Brocade.
Partnership with Qlogic
QLogic (QLGC, Financial) has recently announced its partnership with Brocade. It also acquired Brocade’s Fibre channel and converged network adaptor business for $10 million.
QLogic also has an in-depth portfolio of products for storage solutions and data center equipment. In Q2 2015, it posted revenue of $127.5 million which was an increase of 13% year-over-year.
The growth of the consolidated revenue in the current quarter was mainly driven by increased demand for Fibre Channel adapters. The revenue growth was also leveraged by a higher demand of advance connectivity platforms (server and storage connectivity). These services are recent inclusions in the product portfolio of QLogic.
The operating expense of $61.8 million decreased (year-over-year) by $1.7 million. The decrease in the operating cost was mainly due to lower engineering and development cost.
As an OEM supplier for companies like IBM (IBM) and HP (HPQ), it estimates better growth but can face stringent competition from companies like Cisco (CSCO).
Conclusion
Lately, the company has witnessed positive earnings estimates revisions that can lead to a bullish trend. In past two months, three estimates have gone higher with no downward revision. Brocade has witnessed an increase in revenue, and the company's cost-cutting moves and the opportunity in the storage industry could lead it to better days. For investors, the company’s stock prices have hit 52-week highs and have crossed the $10 barrier. The price momentum seems to be positive for Brocade. In 12 weeks, 18% price growth was recorded by Brocade
