Investors in networking equipment firm Brocade are pinning their hopes on its plans to launch a high end router next month, hoping this will improve its performance with carriers and drive new life into its financial performance.
Announcing its third quarter results, Brocade said it would announce a new router in mid-September, targeted at dense 100Gbps deployments for service providers and large enterprises, sectors where it has been struggling against Cisco. The firm’s carrier router sales have been flat for the past three quarters, a trend which it blamed first on a major customer slowing its network spending, and then on many clients choosing to wait until the new router arrives.
It will therefore be important that the new router lives up to their expectations. Although Brocade is saying little about it ahead of the launch, it did stress that it would support strong visibility for analytics, and would incorporate the data automation capabilities acquired earlier this year with StackStorm. It will be based on Broadcom’s Jericho switch-chip, unveiled in 2015.
For its third quarter, Brocade reported a 7% year-on-year rise in revenue, to $591m, largely driven by its acquisition of WiFi equipment vendor Ruckus Wireless. However, non-GAAP earnings per share were $0.21, down 21%, though this was actually ahead of Wall Street forecasts.
The results did provide early justification for the Ruckus deal, which closed at the end of May. Brocade CFO Dan Fairfax said there was “healthy product demand” for the WiFi company’s indoor and outdoor access points and managed services platforms, even though the quarter only included two months of Ruckus sales.
Overall IP product revenue was $209m, up 36% year-on-year, including $73m from Ruckus. Excluding that factor, Brocade IP networking product revenue was $136m, which was below expectations, largely because of a shortfall in US federal sales. This hit Ethernet switch sales, which fell by 10%, while router sales were down 14% amid the waiting period for the new product.
Meanwhile, IP-based global services revenue was up 21% to $44m, but this was a lower growth rate than Brocade has seen in the past, and the increase was mainly down to $5m in additional service revenue from Ruckus.
For the fourth quarter, Brocade offered guidance of revenue between $630m to $650m, with IP networking revenue up between 17% and 22% quarter-on-quarter.
Brocade is a company in transition. Its biggest business has always been storage area networking (SAN), the trend which created its success, but this is growing only by single digits. For the past eight years, it has been looking to balance the slowdown of that market by building its IP networks operation, initially for enterprises but also targeting service providers. In 2008 it acquired Ethernet router maker Foundry Networks, a purchase which was expected, at the time, to drive a more rapid expansion in networking than has transpired.
However, Brocade has seen steady IP networks growth, and in recent years has intensified its focus on wireless, buying Vistapointe, a specialist in mobile analytics, in 2014; virtualized EPC (evolved packet core) provider Connectem in 2015; and now Ruckus.
The $1.2bn acquisition of Ruckus promised to make Brocade a far stronger challenger to Cisco, and potentially positioned to eclipse Juniper in the carrier space. At the time of the announcement in April, Brocade said the key aim was to address “critical networking requirements from the data center to the wireless network edge”.
As enterprise networks and data centers converge with telecoms infrastructure, there are new opportunities for the corporate switch/router vendors, and all of the majors – Cisco, Huawei, HPE and Brocade – are aggressively targeting the segment, which puts further pressure on Juniper, traditionally the most heavily focused on operators. Brocade expects that, with the acquisition of Ruckus, it will claim number one spot in service provider WiFi, while being number two in data center networking, and number three in enterprise WLAN.
Brocade has been working hard in the NFV (Network Functions Virtualization) area, partly as a way to penetrate the carrier and access network markets by the back door as these shift away from traditional platforms. Now Ruckus will help it to extend its reach further, complementing previous purchases like Connectem and giving it many of the tools to provide the flexible, on -demand networks that operators will demand in future.
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