Brocade Posts $146 Million Loss for 2Q

Results compare to a prior-quarter loss of $6.9 million and a year-ago profit of $14 million.

Brocade Communications Systems Inc. on Wednesday announced a significant loss of $146 million for the second quarter of 2003, on revenues of $130.9 million, officials said.

The results for the leader in midrange storage area network switches compare to a prior-quarter loss of $6.9 million and a year-ago profit of $14 million, on $123.1 million and $135 million, respectively.

CEO and Chairman Greg Reyes put a positive spin on the results. "Our second quarter results were solid and in line with the plan," with the closing of the Rhapsody Networks Inc. acquisition and layoffs both having an effect, he said. "The business environment remains challenging. We believe SANs remain an area of strategic focus for IT executives," he said.

Brocade, of San Jose, Calif., had a busy quarter in partnerships. EMC Corp., Hewlett-Packard Co., and Veritas Software Corp. all announced support for the Fabric Application Platform, as did several smaller independent software vendors.

Brocade also announced layoffs in the quarter, and is trying to improve efficiencies by signing more embedded systems OEMs, cost cutting in manufacturing, and outsourcing of testing, Reyes said.

The company faces tight competition from high-end switch leader McData Corp. and the threat of SAN newcomer Cisco Systems Inc., niche players such as Computer Networking Technology Corp.s Inrange division and QLogic Corp., and various startups.

Regarding the competition, "I certainly dont want to discount Cisco," Reyes said. But compared to traditional data networking, "This is a different space with different customers using a different technology solving a very different set of problems. We have proven to ourselves that we can compete effectively. … Cisco doesnt even use their own products in their data center at this time," he asserted.

For its part, McData Corp. officials take Cisco more seriously. Of the possibility that Cisco might sell directly to end users, "That is the single biggest thing that makes me worry," CEO and President John Kelley said, in a recent interview. Cisco officials denied having such a plan.

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