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Storage Boom Drives Strong Brocade Results

Brocade Communications Systems rode a boom in networked storage to double-digit revenue growth and earnings that beat analysts' expectations in its fiscal third quarter.

The company, which sells storage networking gear under its own name and big-name brands including EMC and IBM, on Wednesday reported revenue of US$365.7 million for the three months ended July 26. That was up nearly 12 percent from $327.5 million a year earlier and surpassed a consensus forecast of about $352 million from analysts polled by Thomson Financial.

Brocade's growing revenue helped drive net income that was nearly double that of a year earlier, reaching $20.3 million, or $0.05 per share. Not counting certain one-time items, Brocade earned $0.16 per share, beating analysts' consensus expectation by two cents.

The company said its DCX Backbone, a multiprotocol storage switch introduced in January, is ahead of initial sales forecasts. Its switch business as a whole posted record revenue through sales of both current-generation 4G bps (bit-per-second) Fibre Channel gear and newly introduced 8G bps equipment, Brocade said.

Brocade's strong results came despite a weak U.S. economy, even though the company depended on the U.S. for more of its revenue than a year earlier -- 65 percent versus 58 percent.

Enterprises' need to keep more data and consumers' desire to store more content online are fueling the growth of Brocade and other storage vendors, said analyst Tam Dell'Oro of The Dell'Oro Group. Increasing government requirements for disclosure mean companies have to back up and save more data, bolstering their storage infrastructure and in some cases hooking departmental servers into Fibre Channel SANs (storage-area networks) for the first time, Dell'Oro said. At the same time, the growing popularity of video and photo sharing sites, and Internet e-mail with unlimited storage, forces the providers of those services to invest in more storage and accompanying connectivity.

Even in industries that are hurting, many IT departments are buying storage-related gear anyway, sometimes as part of a belt-tightening exercise, said StorageIO analyst Greg Schulz.

"They are selling technology into a space that is need-to-have and must-have technology to keep businesses running," Schulz said. "Something else may come off the budget." For example, a strategy around using Web 2.0 software could wait in many cases until an enterprise feels financially stable, he said.

Companies such as Brocade also gain when enterprises try to cut costs by centralizing their servers and storage in new or upgraded data centers, Schulz noted.

The quarter saw Brocade kick off one of its biggest acquisitions ever, agreeing to buy Ethernet LAN switch vendor Foundry Networks for about $3 billion. The deal, expected to close in the fourth quarter, should help the company remain on the cutting edge of a move toward consolidated data and storage networks, analysts said.

The strong results boosted Brocade's stock (BRCD) on the Nasdaq. In afternoon trading on Wednesday, its shares were up $0.21 at $7.44.

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