Brocade wants to be seen more as a data center player with software defined networking as well as its storage. The upshot is that Brocade is positioning itself to be an arms dealer to cloud providers, but analysts are hankering for more revenue growth.
The company's strategy was outlined during Brocade's analyst day on Wednesday. The key takeaways were that Brocade:
- Will spend $1 billion buying back shares.
- Is cutting $100 million a year in expenses a quarter ahead of expectations.
- Will focus headcount reductions on executives. Layoffs have hit 16 percent of Brocade's vice presidents and 6 percent of hands-on and customer facing employees.
- Projected flattish annual revenue growth, but maintained its outlook.
- Highlighted a No. 3 position in the data center via its storage area networking, traction in software defined networking and OpenFlow router points deployed.
CEO Lloyd Carney said Brocade's Switzerland approach to partnerships can provide a larger footprint in the data center. Overall, Brocade wants to be seen as a key software defined networking player. The company appears to be off to a good start.
Perhaps more notable is that Brocade is talking up key cloud wins with Amazon Web Services and Rackspace. It's rare that AWS will talk about vendors inside its data centers. For Brocade, those two cloud providers could encourage more enterprises to look at the company as a supplier.
In a nutshell, Brocade's strategy revolves around its "evolutionary" core businesses such as storage area network and campus networking and eventually delivering growth via software defined networking through its Vyatta acquisition and other virtualization-powered product lines.
Overall, analysts see Brocade's strategy as a positive, but are wondering where the revenue growth will come from. The biggest issue is that Brocade seems to be moving into Cisco's turf more.
JMP Securities analyst Erik Suppiger said:
We are encouraged that the company is reducing expenses and optimizing its product portfolio, but concerned that the company's growth is increasingly dependent on the data center switching market, which is extremely competitive and dependent on the federal sector where budgets have been declining...We believe Cisco has dominated the data center market and Brocade has struggled to displace Cisco with large data center deployments of Brocade's fabric Ethernet technology. And while Cisco cannot control the entire data center switching market, we believe other data center switching companies, such as Arista, have gained significant mindshare.
Other analysts such as Stifel's Aaron Rakers were more positive but revenue growth was a consistent worry.
Going forward, it's clear that Brocade is betting on software defined networking, data center fabrics and using open standards to create orchestration frameworks. It will take time for Brocade to communicate and deliver on that strategy.