Cisco rival Brocade still struggling in Ethernet

Q4 preview upbeat on SAN and overall, but downbeat on current Ethernet products, market presence

Brocade's Ethernet business is still challenged as the company prepares to announce fourth quarter results, reports investment for Oppenheimer & Co. in a quarterly preview bulletin. There's growing interest in a new line of switches that Brocade will soon announce but the company still hasn't "fully addressed" its Ethernet impediments, the firm states. 

Oppenheimer bases its preview on channel checks with 29 US and European resellers. The firm expects Brocade to report results in-line with previous guidance and Wall Street expectations but driven predominantly by SAN sales. 

Brocade releases its fourth quarter results on Nov. 22. Consensus estimates have revenue coming in at $536.5 million but earnings off two cents per share from last year. 

Ethernet won't be a highlight, according to Oppenheimer: 

Despite its increased efforts, our checks suggest Brocade remains challenged in Ethernet. Lack of competitive solutions (outdated/uncompetitive products, portfolio gaps) and market presence are key concerns. As a silver lining, interest in Brocade's (new) switches, which are launching this month, was positive. 

Brocade announced its new Brocade One switches in June. Brocade's been tinkering with its go-to-market model for Ethernet switches ever since it bought Foundry Networks in 2008

Sales have been uneven in recent quarters. The company is trying to strike a balance between its OEM and reseller channels, and is particularly challenged in igniting sales through OEM IBM. 

Nonetheless, Brocade's SAN switching business is strong and an upgrade system is kicking in, Oppenheimer notes: 

Brocade appears to be strengthening against Cisco in SAN switching, and we believe the 16Gbps FC upgrade cycle launching mid-CY11 (first to market) could extend Brocade's leadership even further. 

For the current first quarter of FY 2011, 40% of the 29 Brocade resellers expect positive sequential growth, with 24% expecting better than 5% growth. IT budget flushes, increased demand for storage and consistent discounting were pegged as drivers for Q1.

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