Brocade: Acquirers Need Not Apply

Brocade denies rumors that it has been shopping around for a buyer.
Publish date:

SAN JOSE, Calif. (





has denied that it was shopping around for a buyer after months of M&A


swirling around the firm.

The switchmaker, which released its

fourth-quarter results

late on Monday, quickly dispelled any acquisition rumors during a conference call before the market open.

Brocade had been


as a possible

acquisition target



(HPQ) - Get Report

prior to the tech bellwether's


acquisition of




"We don't like to comment on rumors -- we have never commented on rumors," said Mike Klayko, the Brocade CEO, in response to an analyst's emailed question.

The Brocade chief, however, said that he wanted to address a slew of recent "misinformation" in the shape of rumors that the company had been shopping itself around. "We were not -- we have a very bright future," he added. "We want to put that to bed right upfront."

Brocade took the unusual step of releasing its fourth-quarter results at 7 p.m. ET on Monday and following up with a conference call before market open on Tuesday. A company spokesman told


that the schedule allowed more opportunity for analyst questions.

As expected, Brocade's management team was grilled on the threat posed by long-standing partner H-P, which now has access to 3Com's Ethernet switch technology.

"We have had a large partnership with H-P in the storage area, we believe that that's going to continue," replied Marc Randall, Brocade's senior vice president of products. "On the IP side, we have competed with H-P

and we see some areas that they will continue to be weak in -- one area is the data center."

Brocade met analysts'


in its fourth-quarter results, although the company's profit dipped on


. The Silicon Valley firm pointed to strength in its North American, Japanese and federal government businesses, as it boosted its revenue 33% year over year.

The networking specialist also reiterated its revenue guidance for fiscal year 2010, but indicated that the first-quarter growth will be below traditional seasonal trends of 6% to 8% sequential growth at 4% to 5%.

Brocade also says that the second and third quarters will be "flat to up" ahead of a strong fourth quarter, suggesting that there are clouds of uncertainty still hanging over the economy.

Investors were underwhelmed by the results. Brocade's shares dipped 51 cents, or 6.51%, to $7.29, far outpacing the broader decline in tech stocks that saw the Nasdaq dip 0.92%.

"The October quarter saw revenue in line with commentary given during the September Analyst Day, although we believe that investors were on balance looking for a beat," explained Ryan Hutchinson, vice president of data networking of Lazard Capital Markets, in a note. "Brocade continues to have significant growth opportunities; however, we believe that near-term results may be modestly below expectation while uncertainty with respect to the LAN business appears to be increasing."

At least one analyst, however, feels that there were plenty of positives in the company's numbers.

"In-line revenue and a solid earnings beat should be more than enough given the recent decline in Brocade shares," wrote Min Park, an analyst at Goldman Sachs, in a note, giving the company a buy rating.

The Brocade CEO told


that he sees a major opportunity as companies slowly reopen their corporate coffers in 2010.

"The biggest growth opportunities are clearly in the data center," he said during a phone interview Tuesday. "There's a major growth opportunity around rearchitecting and growth in data centers."

Specifically, demand for storage and networking is on the rise, according to Klayko, who reiterated his desire to turn Brocade into a $10 billion company.

"We're still on that trajectory," said the CEO, but would not give a deadline for when this will happen.

The CEO also said that rival


(CSCO) - Get Report

recent entry into the server market has opened the door for Brocade. As one of the tech sector's collaborators-in-chief, Cisco's move was seen as highly controversial, pitting the networking giant directly against long-term partners such as


(IBM) - Get Report

and H-P.


Cisco getting into the server business, we anticipated, but we didn't anticipate the fallout," explained Klayko. "We have more opportunities and partnerships coming our way than we maybe originally anticipated in our business model."

-- Reported by James Rogers in New York