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TheStreet Open House

Brocade Communications Systems Management Discusses Q2 2012 Results - Earnings Call Transcript

Our Q2 revenue was slightly down year-over-year, primarily due to the divestiture of the SBS business unit in late 2011. However, the increased focus on our core businesses, as well as emerging target markets helped improve gross margins and profitability.

An important part of our growth strategy is to focus on investments in key target markets, selecting those areas where we can leverage our technology and market leadership. Over the past 2 years, we have made strategic investments that have reduced profitability. But we do believe that the aggregate return over time will be significant to our business. We're now at an inflection point where we expect to grow profits faster than revenue by driving efficiencies into our business.

To date, this strategy includes the introduction of new highly differentiated products with improved cost structures, the divestiture of a low-margin business unit, the development of our channels for efficient sales coverage and the prioritization of resources and investment dollars into high-growth markets.

We've been aggressively reducing our term loan and opportunistically repurchasing shares, which returns cash to our shareholders. The Board of Directors recently increased our authorization for stock repurchase plan, which was originally approved in 2004. To date, we repurchased more than $650 million or 108 million shares and had approximately $124 million remaining under the plan. The refreshed plan increases our authorization by another $500 million to approximately $624 million. To fund the updated program, we plan to utilize cash from operations, and we may consider monetizing our San Jose campus depending on the market conditions.

Now on to the quarter. One of the highlights in Q2 was the strength of our Storage business, which generated $400 million in total revenue, representing a 3% increase year-over-year in what is typically a seasonally soft quarter. A key driver was our 16-gig SAN portfolio, which accounted for 23% of Director and Switch Storage product sales in Q2 and helped us gain market share.

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