Brocade Cuts Costs, Beats Tough Spending Climate

NEW YORK (TheStreet) - Brocade (BRCD) shares surged during Tuesday trading, lifted by the gearmaker's better-than-expected fourth-quarter results in a tough spending climate.

The networking specialist's results came hot on the heels of rival Cisco's (CSCO) revenue miss last week, as the tech heavyweight felt the impact of weak U.S. federal and emerging market spending.

Brocade shares climbed 8.03% to $8.74 by midday as investors digested the company's numbers, particularly its earnings of 24 cents a share, a 41% increase from the same quarter in 2012. Analysts surveyed by Thomson Reuters were looking for earnings of 18 cents a share.

San Jose-based Brocade acknowledged U.S. federal budget issues and continued softness in the overall storage market, although Wall Street applauded the company's cost-cutting efforts. During its fourth quarter, Brocade met its goal of reducing annualized spending by $100 million, two quarters ahead of schedule.

Speaking during Brocade's earnings conference call, CEO Lloyd Carney said that these efforts, combined with expanding gross margins, contributed to the company's impressive earnings hike. Excluding items, Brocade's gross margin was 67.2%, up 240 basis points from the prior year's quarter and 160 basis points from the third quarter.

"[The] company holds serve in tough environment," wrote Sterne Agee analyst Alex Kurtz, in a note released on Tuesday. "While the outlook for long-term growth remains challenging to outline, the company executed well during October quarter given Federal headwinds that have hit the company's key Storage OEMs and more severely its IP business."

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