Analysts forecast the Global SAN (Storage Area Networks) market to grow at a CAGR of 8.42 percent from 2012 to 2016. One of the key factors contributing to this market is the improved scalability facilitated by SAN solutions. The Global SAN market has also been witnessing an increasing adoption of Fiber Channel over Ethernet (FCoE) solutions. However, the high cost of FC SAN solutions could pose a headwind to the growth of this market. Brocade Communications (BRCD, Financial) has been steadily gaining a wider market share, which influences growth in its stocks prices. This year, Brocade's share price has gained 18.3%, and the momentum should continue providing healthy returns to investors.
Growth Momentum Continues
After ending a strong second quarter, the momentum continued in the third quarter. Brocade is witnessing substantial profits from its data center.Ă‚
Last week, Brocade declared the third quarter results that recorded sequential and year-over-year growth. Brocade reported third quarter revenue of $545 million, up 2% year-over-year and up 2% quarter-over-quarter. In the third quarter, the company recognized a gain of $77 million in a litigation settlement with A10 Networks, which increased GAAP EPS by $0.13 in that quarter. Non-GAAP diluted EPS was $0.23, up from $0.19 in both sequential and year over year. Higher revenue, lower operating expense and improved gross margins were the major factors in EPS growth.
Major contributions to the revenue (around 70%), came from the SAN business, and totaled $380 million, up 3% year-over-year and flat consecutively. Higher sales of switches, up 4% contributed to the SAN business revenue growth, this was partially offset by decline in sales volume of embedded products. In general, the revenue was much more than expected, despite a quarter of lower demand.
IP Networking business revenue was $166 million, down 1% year-over-year, but a 5% sequential increase. The consecutive expansion was due to higher sales of Ethernet cards to the U.S. federal government and solid Brocade VDX deals to server farm clients.
Brocade is focused on core competencies in hardware and software networking to position the company for future growth.
Synergies Influencing Growth
Brocade Capital Solutions will partner with BNP Paribas Leasing Solutions to wider its services footprints in Europe. Under this agreement, BNP will provide Brocade leasing services in European countries (U.K, Netherlands, Germany, France, Italy, Austria, Belgium and Spain) and India. Under the terms of the understanding, BNP Paribas Leasing Solutions will collaborate with Brocade to upgrade their renting abilities, permitting organizations the adaptability to receive organizing foundation on adaptable and monetarily alluring terms.
Brocade's business organization will partner with Net One Systems, the biggest framework integrator organization in Japan, in order to open doors in data centers and service suppliers in Japan. According to statistical surveying firm IDC, the IT market in Japan is assessed to be worth about $110 billion. Brocade and Net One's partership should bring about positive developments for Brocade.
TelefĂłnica and Brocade have entered into a joint venture program to establish new benchmarks for the deployment and performance of Network Functions Virtualization (NFV) solutions. This can be the perfect time for this program to be executed; the market is forecasted to reach approximately $5 billion by 2018, including software, servers, and storage. The benchmark programs will enable Brocade to aquire this growth market of NFV.
Conclusion
Brocade has had a strong growth pattern in the past year. Margins are going to start to expand, and the stock may be on the cusp of a major breakout. So, it won’t be a bad deal to strike when you press the buy button for Brocade.
