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Brocade Cites Weak IT Spending in Q2 Revenue Warning

Company officials cite softer-than-expected revenue for its Fibre Channel networking unit and slow U.S. federal business.

Brocade earnings

Brocade officials expect revenue for the most recent financial quarter to come in below expectations due to a general weakness in IT spending, echoing what other tech vendors have mentioned in recent months.

Executives with the networking vendor in February had expected revenue for Brocade’s second fiscal quarter to come in between $542 million and $562 million. However, they announced May 2 that revenue instead will hit between $518 million and $528 million. Brocade is scheduled to announce second-quarter earnings May 19.

In a statement, Lloyd Carney said the "general softness in IT spending" is similar to what other vendors in the tech industry had pointed out in recent months, adding that Brocade realized weaker than anticipated revenue in its storage-area network (SAN) revenue and pressure on its IP networking unit, especially from service providers and U.S. federal business.

"We are addressing these near-term challenges by continuing our focus on sales execution in this weaker-demand environment, maintaining prudent expense controls and managing our investments in line with our stated priorities," Carney said. "We continue to execute on our strategy to build a pure-play networking company for the digital transformation era that expands our market reach, diversifies our revenue mix, and creates exciting, incremental opportunities for growth."

Among the other vendors that have issued revenue warnings is rival Juniper Networks, which earlier in April pointed to weak demand from enterprise customers and poor timing on deployments by some top-tier telecommunications customers in both the United States and Europe.

For the previous quarter, Brocade reported $574 million in revenue, flat from the same period the year before. In a conference call in February to discuss the quarterly financial numbers, Carney noted solid performance in the company's Fibre Channel storage and SAN businesses, but said the IP networking business was being hurt by a steep seasonal decline in the U.S. federal business.

"As a result, we're maintaining a more modest view of our IP networking business in the first half of the year," the CEO said, according to a transcript on Seeking Alpha. "However, we do expect significant improvement in the second half as the U.S. federal markets becomes seasonally stronger and new products provide an opportunity to accelerate growth."

Brocade officials, who over the past several years have worked to build out the company's software-defined networking (SDN) capabilities, announced in April that the company was buying Ruckus Wireless for $1.2 billion in a bid to bolster its wireless networking expertise.