While analysts disagree on the cause of Brocade’s shock warning of a coming sharp fall in revenue, the SAN switch making giant has indicated strongly that casualty list from the 12% layoffs it announced last week includes more than three vice presidents, as well as its COO and president.
During its earning call on Thursday, the SAN switch maker said the layoffs were necessary only because the growth that the company anticipated early this year had not happened, and it said that president and COO Mike Byrd was leaving the company to spend more time with his family. Byrd will leave Brocade at the end of January, and continue to advise the company for another three months after that.
Alongside Byrd, the company is losing its CTO and VP of engineering Morris Taradalsky, its marketing vice president Jeff Brooks, and its general manager and vice president of global services Rich Geruson. The senior executive bloodletting does not stop there, apparently. A spokeswoman for the company declined to answer when asked whether any other Brocade vice presidents have been axed – a sure sign that they have.
On Thursday Brocade announced in an earnings call that revenue during its current fiscal quarter will fall by up to 22% sequentially, a strong contrast with revenue guidance across the rest of the storage networking industry which is generally indicating flat or single digit sequential revenue growth. As a result, Brocade’s share price fell 26% during trading on Monday.
Brocade said that its revenue will return to growth in its second fiscal quarter. Analysts disagreed on the reasons for the temporary slump. Sabrina Ricci, analyst at Deutsche Bank, said it was clearly the result of channel stuffing – Brocade selling the channel more hardware than the channel is itself able to sell on to end-customers. How else could Brocade predict that its revenue growth would return after a quarter, she asked. Demand is a not a one quarter phenomenon, she said.
For the Evaluator Group, Randy Kerns said he certainly does not believe that Brocade has been stuffing its channel. According to Kerns, Brocade is likely to have been forced to lower the price of its hardware because of the launch of new mid-range hardware by its rival McData Corp. When it launched its 8-port to 24-port Sphereon 4500 SAN switch in October, McData claimed it carried a per-port list price which was 50% lower than that of equivalent Brocade hardware.
The channel-stuffing theory was also rejected by Tom Lahive at the Enterprise Storage Group, based on what he said was ESG’s contacts with OEMs, customers, and resellers. Brocade is being overly-conservative – or pessimistic – about its sequential revenue downturn. I’d be surprised if turns out to be in double digits, he said. Lahive was however unable to explain why Brocade should suffer a downturn when the rest of its sector is enjoying growth, despite saying that Brocade’s bias towards mid-range products should enable it to endure market downturns better than suppliers such as McData, which is more focused on high-end sales. The ESG also believes that other than the loss of Brocade’s COO, the cull of executives at the company was to make room for the new team in Rhapsody, which has a strong industry reputation. Lahive added that possibly Brocade is anticipating that the hand over of reins will lead to a little internal confusion during its current quarter, and this is the reason for its predicted downturn.