Is Brocade Weaving A Winning Tale?

These are Dickensian times for the networking space; perhaps not the best of times for players like F5 (Nasdaq: FFIV), Meru (Nasdaq: MERU) and Aruba (Nasdaq: ARUN), but very strong all the same. On the other side of the ledger, a poor spending outlook at the federal government level led Cisco (Nasdaq: CSCO) to lower its guidance and now the same seems to be true for Brocade (Nasdaq: BRCD). Making matters worse, this quarter highlights that Brocade is still not able to deliver the sort of consistency that a lot of the Street really seems to crave right now. 

An Okay End to the YearIt is often wise to be wary of companies that boast of relatively meaningless accomplishments and the title of this quarter's earnings press release included mention of "all-time record revenue". Despite that yellow flag, revenue did grow more than 5% from the year-ago level, and better than 9% on a sequential basis.

Unfortunately for investors, Brocade is one of the many tech companies that muddies its financial reports with GAAP and non-GAAP reporting. On a non-GAAP basis, gross margins improved nicely on a sequential basis, as did operating margin - though the later was down on an annual comparison. At the bottom line, earnings were weaker whichever way an analyst wants to look - down 27% by GAAP math or 10% by non-GAAP calculations.


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EMC Buys More Storage Space

EMC (NYSE:EMC) is making one thing abundantly clear - if it has to do with enterprise storage, they are going to have a piece of it. From the first Symmetrix back in 1990, to the latest in software/hardware hybrid, EMC has always been at or near the edge of what is possible with large-scale storage. Now the company is buying Isilon Partners (Nasdaq:ISLN) in what may prove to be a stronger foothold in the next major type of corporate data storage technology. 

The Deal
EMC is paying $33.85 a share in cash for Isilon, a deal that represents a 29% premium for Isilon shareholders and a nearly $2.3 billion bill for EMC. With a termination fee of $100 million attached to the deal, though, it is not unthinkable that other bidders could come into the game.


What EMC Is Getting
Isilon is a very small company in data storage - trailing revenue of less than $200 million, compared to EMC's $16.2 billion - but a very promising one all the same. Isilon specializes in highly-scalable, clustered storage systems that store very large continuous files, and has been involved in this scale-out network attached storage market virtually from the beginning. This market exists because unstructured data is not easily handled by traditional systems, but companies involved in life sciences (sequencing data), media (movies) and energy (seismic data) find they need a better way of handling these huge files. (For related reading, see Xyratex An Interesting Data Storage Play.)

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